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Ocean, Air, and Small Pack Freight Update: August 28, 2020

Posted by Mihlfeld & Associates on Aug 29, 2020 8:45:00 AM

Ocean Freight

China-US West Coast prices increased 2% since last week to $3335/FEU. This rate is 161% higher than the same time last year. China-US East Coast prices also climbed 5% to $3892/FEU, and are 50% higher than rates for this week last year.

Ocean rates from China to the US continued their peak season climb, but slowly as China-US West Coast prices increased by only 2%. Demand was strong enough to push rates up even with cancelled sailings and added temporary and even new permanent services on the lane by carriers.

Carriers will likely introduce another China-US General Rate Increase to start September as we are seeing reports of rolled shipments and container shortages out of China. A September 1st GRI would be the 6th GRI in just three months. This could push East Coast rates beyond the $4000/FEU mark, which is a milestone not passed even in the 2018 trade war.

UPS, FedEx, and USPS announced rate increases as they work to handle surges in volume. Amazon posted new warehouse and delivery requirements on its Fulfillment by Amazon sellers aimed at making sure it has enough space for the peak season push.

Small Pack

U.S. retailers will be finding a stocking full of additional fees United Parcel Service Inc. during this year’s holiday season. The UPS surcharges could reach $3 a package for ground shipments and up to $4 a package for air shipments bound for residences. The carrier is suggesting its customers take steps to limit the volume spikes that are disrupting networks, including spreading out sales promotions and encouraging shoppers to have goods delivered to central access points such as in store pickup rather than home delivery.

UPS and FedEx Corp. have already imposed surcharges on large shippers, and have intentions for double-digit price increases to offset the added cost and complexity of the surging numbers of future residential deliveries.

Air Freight

The U.S. supply chain industry appears divided over how the government should implement new international security standards for air cargo and whether some exporters should get special treatment to minimize associated cost increases. Shipping delays could be in order if the Transportation Security Administration doesn't figure out a plan well before the standards take effect on July 1.

What is unknown is whether the TSA will recognize the security controls of e-commerce fulfillment centers, warehouses, and other shippers as sufficient or require them to pay costs associated with 100% screening of their air cargo shipments. Either way, shippers will face increased costs and responsibility for their export cargo.

On one side are logistics intermediaries and security experts who argue the same structure for passenger cargo security should apply to the all-cargo sector. That would be cheaper for exporters than a known consignor program, which would need to be layered with additional screening requirements for air shipping. Others say it makes sense to allow large retailers, manufacturers, and distributors to become known consignors and have their facility security deemed equivalent to shipment screening. The concept somewhat resembles the U.S. Customs-Trade Partnership Against Terrorism, a voluntary program that vets import supply chains against baseline standards in exchange for expedited processing, but which TSA says doesn't meet standards for air cargo security. Given a choice, retailers and other exporters ultimately will decide which system best maintains smooth shipment flow and whether to take on the additional cost of meeting new requirements, either as a regulated party or as a known consignor.

Raising security levels to the air standard would require shippers to make substantial investments that they previously have been unwilling to make. Extra expenses would likely include additional personnel and supervisors, extensive employee background checks and government credentials, training, screening technologies that can range in price from $30,000 to $250,000 per unit plus maintenance, and creating a physically secure area in the warehouse for screening.

If other countries don't like the alternative to 100% screening, there is a danger they could impose restrictions on inbound shipments from the U.S. Hong Kong may already be one of these countries as they are far ahead of the U.S. in implementing the new air cargo security requirements. Since January, airlines and ground handlers in Hong Kong began inspecting a quarter of all shipments, with inspection levels stepping up in phases to 100% by next June.


Topics: 3PL, COVID-19, Economy

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