Interlog 
Insights
January 2023
The following is an archived collection of our weekly insights through the first month of 2023. Those who had signed up to our Interlog Insights newsletter received each week’s update to their inbox on the original release date. If you like what you see below, please feel free to sign up yourself to get these updates right as they come!
This month's insights
- 'Magic Freight Ball' Predictions
- Container Flow
- Air Freight Outlook
- Port of Houston's Dwell Fee
Week 4 - Originally released January 27
Insight: What Container Flow at U.S. Ports Has Looked Like, Plus Additional Updates
Throughout the last few weeks, we’ve discussed and detailed the importance of container flow at U.S. ports, and the role container flow played during the pandemic.
Let’s compare December 2022 container import volumes at U.S. East Coast and West Coast ports to respective December 2019 (pre-pandemic) volumes, via the graph below.
Don’t worry, we did not forget about the U.S. Gulf Coast.
- The Port of Houston set a record high container throughput of 3.97 million twenty-foot equivalent units (TEUs)
- Corpus Christi saw a 12 percent year-over-year increase in total cargo
- Mobile had its busiest year for container cargo with 563, 191 TEUs
- New Orleans reported a 20 percent increase in breakbulk volumes
Any additional updates?
A shipping line shakeup has been reported. This week, the world’s two largest ocean lines, Maersk and MSC, have announced their 2M Alliance will be terminated, effective January 2025. The two parties mutually agreed to part ways with their vessel sharing agreement citing individual differences in business strategies.
Since pandemic times, MSC has been more focused on expanding its ocean capacity, while Maersk has committed to broadening itself into an end-to-end logistics provider.
UPDATED Predictions!
Recap of this month: January’s predictions were all about Chinese New Year. We had our Chinese partners, RS Logistics, join our live webinar to share special insights on CNY, what shippers can expect after the holiday, and overall outlook for 2023. Watch now!
Predictions from our Chinese partner for 2023:
- Overall improvement of vessel schedule reliability (reaching 52 percent) in Q4 2022 is expected to carry forward into 2023.
- Severe port congestion is unlikely to happen in China due to the country’s suspension of stringent Covid-related policies.
- Continue to observe signs of market normalization in 2023.
Insight: Despite Easing Conditions, Shippers Should Not Rule Out Air Freight
Last week, we reported that air freight activity was muted before this year’s Chinese New Year holiday. While the same can be said for all modes, air freight’s nosedive in demand carries more of a revelation aside from shippers just having leftover inventories.
Market conditions for ocean freight are softening and have become a lot more favorable to shippers. As a result, air freight has lost its allure as a sexy alternative to circumvent the delays and port congestion ocean freight had been plagued with the last couple of years.
Right now, demand is grounded on the tarmac as shippers see air as a premium service in a market that doesn’t warrant said premiums. Port congestion is minimal and space is readily available for ocean freight. Shippers are beginning to feel in control again.
When needed, air freight remains a competitive, improving, alternative
Sure, if the only care in the world is price, when faced with choosing ocean or air for a shipment, the decision is rather clear. Choose the one that’s cheaper—ocean.
However, despite this ideal rationale, air freight is not about to ride-off into the sunset anytime soon. In fact, air freight’s outlook (lower rates and growing capacity) will be a great benefit to shippers in 2023.
Yes, similar forecasts are in line for ocean freight, but the main point is, air freight should not be dismissed.
Air freight’s loose capacity is not just a result of low demand. Carriers have added full-on freighter capacity, expanded routes, and rekindled passenger travel (belly capacity). The industry has completely flipped from previous years and is morphing into a competitive market.
Shippers, who are now in control as buyers, have improved access to pricing and capacity options with this alternative mode.
While it’s not likely they will choose air over ocean on just price alone, that’s the thing about logistics. It’s never just about price.
The supply chain is sorting out its kinks but that doesn’t mean it’s immune to any future disruption. Shippers benefit from having alternatives close to their chest. Whether it’s their pool of vendors, routing, lane networks, or transport modes.
In other words, what’s effective for one shipment, may not be the best for the next shipment. If the last two years taught us anything, it’s all about diversifying options.
Week 3 - Originally released January 20
Insight: Post-Pandemic Container Flow at U.S. Ports
As we think about post-pandemic container flow at U.S. ports, one of the biggest things everyone—even those not in the industry—learned was how important not just the overall supply chain is to the world, but the specific importance container flow has at ports.
Take for instance, the Los Angeles and Long Beach ports. A little over a year ago today, a record 109 container ships carrying American imports were queued offshore the southern Californian coast. Fast forward to today and the once triple digit is now in the single digits.
Another hot topic was (and still is) empty containers at ports. Some ports have even threatened to impose fees due to excess dwell times to pressure carriers to clear out containers.
Back in October 2021, Los Angeles and Long Beach were going to implement a dwell fee, but the program remained being postponed and eventually cancelled this month. The fee being announced was enough to drive action and clear out containers.
As we reported before, the Port of Houston has announced February 1 as the target date of its own dwell fee program. Though, it still remains to be seen whether it will actually be implemented or not.
That all said, are there ways to improve container flow at ports in the near (or long-term) future?
The Push vs Pull concept
This concept would simply direct cargo to be systematically “pushed” out of the terminal, instead of being reliant on being “pulled”, or retrieved only when needed by cargo interests. The latter is the current process in place.
“A system that would increase cargo velocity and increases system capacity, it would limit the amount of time cargo would be allowed to stay at a marine terminal and push cargo from the terminal to its final destination, or to an off dock facility upon arrival.”
– Statement from the Pacific Merchant Shipping Association
This would allow for additional space for exports and empties, while also increasing the volume of imports.
Insight: Air Freight's Quiet Chinese New Year
By the time next week’s edition rolls around, we will be well within the Chinese New Year holiday.
Chinese New Year (CNY) will begin January 22 and Chinese citizens are not the only ones who have circled their calendars.
As we covered extensively in December’s issue, CNY is a notable event that occurs every year in international shipping. Shippers may not be celebrating the holiday’s festivities, but they do typically pay close attention to its industry impacts.
Chinese factories will close, production will seize, and ports will operate in limited fashion for the next two weeks. It’s not until February 5 that we can expect a return to regular operation.
Even in pre-pandemic times, this annual stoppage would influence shipping behaviors. Plans to workaround CNY are traditionally put in place to move cargo out beforehand. Seemingly every year, a rush of volumes is on record.
In particular, air freight, a costlier but faster shipping option, would be a main beneficiary of these demand surges.
But, what’s been true in the past cannot be said for 2023. We are just a few days out and no dramatic jump in volumes has been observed. CNY 2023 is against the grain. How come?
Air freight activity muted ahead of CNY
Many retailers remain sitting with excess inventory. In return, this has led to a complete lapse in demand to bring more freight in.
With retailers having no current need to import, muted freight activity ahead of CNY has been the result. This is especially true for air freight.
Not only has demand waned, other factors over the past couple of years have diminished. Last year, air freight was on the other side of the extreme. It was juggling crazy demand from shippers, constrained capacity, and Covid-related bottlenecks.
In December, air freight volumes were down 8 percent year-over-year, the tenth consecutive month where demand fell. We can expect this trend to hold for January as well.
When’s a recovery due?
Air demand in 2023 will be a slow burner. Some forecast a recovery in the second half of the year, while others contest it can be as early as spring.
At this time, it’s difficult to say which projection is right. Generally speaking, retailer inventories are bloated, however it’s obviously not just one amorphous blob of product. There’s variety between every retailer’s inventory and some will clear out faster than others.
So, by the time spring comes around, it’s not unfathomable for there to be some sort of surge in volumes when certain retailers are looking to replenish their inventories.
However, on that note, air freight will probably play second fiddle as it becomes less needed for many shippers who typically ship via ocean. If the market continues to stabilize, the premiums of air (flexibility, urgency, and emergency space) may not be worth the additional costs.
Week 2 – Originally released January 13
Insight: The Importance of Container Flow at U.S. Ports Have on the Supply Chain
Over 95 percent of the cargo entering the United States arrives by ship and over 360 commercial ports nationwide help to transfer these goods to their destinations, all throughout the nation.
It should also be noted that ports have an impact on the national economy, as well as an impact on the local and regional economies.
How does container flow impact the supply chain? Well, vessel backups and containers flowing through terminals go hand in hand.
If there are too many containers lingering on the terminal, it can impact the pace of loading and unloading at the berth.
This is due to space at the terminal being unavailable. That said space is used to store offloaded boxes and stage outbound boxes for loading, and boxes having to be moved multiple times within the terminal.
This then forces ships to remain at berth for longer, which leads to others having to wait offshore.
So, as you can see when container flow at the ports get disrupted, it can cause headaches in the supply chain.
Of course, when marine terminals get backed up, the impact is not just experienced at the port(s), but throughout the entire supply chain.
Insight: The Fate of Air Freight in 2023
Last week’s focus was on recapping a turbulent year for air freight.
There were highs in 2022. There were lows in 2022. What’s in store for 2023?
Well, there’s some good news—shippers may not have to buckle their in-flight seatbelts and ready their throw up bags. Air freight is not expected to be as volatile as it was last year.
That said, optimism around air freight’s recovery in 2023 eerily mirrors what it was like this same time last year. However, the hope this time around is that another war won’t be started and zero-Covid lockdown measures will be a relic of the past.
With fingers crossed, forecasts, including those from air cargo executives, envision 2023 as a step in the right direction for the industry.
Cargo volumes, revenues are anticipated to decline
The old saying, “one step back, two steps forward”, is an apt way of describing air freight outlook. Even though many stakeholders exude big-picture optimism, they also acquiesce 2023 will not yield a same level of performance that 2021 and 2022 produced.
In its latest December forecast, the International Air Transport Association (IATA) reports global air freight volumes, load factors, and revenues are expected to decline throughout the new year.
Volumes alone are slotted to fall by 4 percent year-over-year in 2023. The projected downturn would follow the already 8 percent year-over-year drop in 2022.
IATA measures air freight volumes by cargo ton kilometers (CTKs).
Like its ocean contemporary, air freight’s volume crunch can be attributed to softening demand in international trade. If the global economy slows this year, like many are expecting, trade is likely following a similar suit.
Air cargo capacity at cruising altitude
Capacity will be plentiful. IATA reports a rise in deliveries for both passenger-to-freighter converted aircraft and “straight-out-of-the box” dedicated freighters adding to the already capacity glut.
Moreover, as passenger travel recovers so does the additional capacity typically available in the belly of passenger aircraft.
Despite all of this capacity being met with current levels of low demand, air cargo executives appear unphased. A popular thought in their circles is that global trade will stay resilient and air freight’s unique draw—flexibility—will always be in demand.
Other trade groups, like the International Air Cargo Association (TIACA), believe the industry, structurally, is in a good place for when demand picks up again. It’s anyone’s best guess on when that will be, but some stakeholders think a new leaf will be turned by the second half of 2023.
E-commerce is king
E-commerce demand will remain at the forefront for supporting any growth to air freight in 2023. A market that boomed thanks to the pandemic, e-commerce is not expected to slow down anytime soon.
IATA estimates e-commerce sales will increase 13 percent year-over-year in 2023. 80 percent of these sales are fulfilled by shipping via air.
Take a look at today’s freighters. Many of them are geared specifically for the e-commerce market.
Overall
All things considered, air freight has a lot of softening indicators onboard for 2023, however IATA maintains that cargo revenues will not decline beyond pre-pandemic times. The organization expects cargo revenues to decline around $149 billion this year, but that figure remains around 50 percent higher than the level in 2019.
Week 1 – Originally released January 6
Insight: Air Freight - Recapping a Turbulent 2022
An underrated silver lining of this volatile year in air freight is the turbulence jokes one gets to make. But, jokes aside, air freight has seen it all in 2022. From nosedives to graceful takeoffs, recapping the industry’s year requires a little dissection.
Let’s get some of the bad stuff out of the way first. The nosedives, if you will.
The Nosedives (The Bad Stuff)
Last year, the industry absorbed the shockwaves of outstanding global challenges. The likes of which gave air freight a hard road map to navigate what was hoped to be a “yellow brick road” to recovery from 2021’s supply chain warps and woes.
In the early months of 2022, Russia’s invasion of Ukraine quickly through a wrench into a smooth recovery. Geopolitical impacts saw both Western nations banning access to Russian carriers and, in return, Russia closing its airspace to most foreign airlines. Another critical setback the war has had is with skyrocketing fuel prices which ushered air freight into decline for the rest of the year.
To make matters worse, the spring and early summer months saw China enforcing stringent Covid-related measures across its many cities. During this saga, the commercial hub of Shanghai had a two-month lockdown where air traffic was constricted, manufacturing output seized, and freight volumes were choked.
These two global events smashed the air freight market. Since early spring, rates have gradually fallen and, by August, data (reported by FreightWaves) found they had dropped 32 percent, their lowest level since April 2020.
High energy prices, inflation fears, and bloated retail inventories (leftover from rampant ordering earlier in the year) also tormented air freight throughout its 2022 season. Near the end of the year, shipper demand was trailing off. Volumes at the end of December were noticeably down when compared year-over-year.
The Graceful Takeoffs (The Good Stuff)
We assure you that 2022 was not all doom and gloom for air freight. Some good developments were observed throughout the year. Here are some of the graceful takeoffs.
The theme of passenger airlines finding out that there are other ways to make money continued into 2022. This revelation first found its wings following the surges to freight demand during the pandemic. The thought was, and still remains, that diversifying assets for both passenger and freight services could not just be a moneymaker, but also a healthy way to expand.
Among many, 2022 saw passenger carriers WestJet and Air Canada throw their aviator hats into the ring. The latter converted three of its Boeing 767 jets into full-on freighters.
Ocean carriers are also getting in on the fun.
Just this December, shipping line leviathan Mediterranean Shipping Co. (MSC) kickstarted an air freight service, while its contemporary Maersk is all in on air and has expanded its capacity and route network.
With all these new players entering the market, aircraft manufacturers are seeing a jump in placed orders. Both Boeing and Airbus reported a large spike in bookings during 2022. Some orders are for newer models, like Boeing’s 777-X, that won’t even be available until the latter half of the decade.
And, while that’s a promising sign of carriers’ faith in air freight, the real demand for these manufacturers has been for passenger-to-freighter conversions.
Like Air Canada, many of these carriers have brought in their already-owned passenger planes to be reconstructed in a way to support heavy-cargo movements. This subset of aircraft manufacturing has taken note of this steady demand and have launched specialized programs for passenger-to-freight conversions.
We might be breaking a rule here giving some bad news in the goods new section, but manufacturing still has some supply chain kinks to fix going into 2023. From trouble filling assembly lines with workers to grueling lead times for raw materials and components, production is still slotted to play catch up on orders
Insight: Union Pacific Lifts Storage Penalty Cap Fees on Containers in Chicago and Kansas City
As of January 1, Union Pacific (UP) railroad has lifted their storage penalty cap fees on containers in Chicago and Kansas City.
Why were the cap fees lifted?
The main reason UP lifted the cap fees, were backlogs of ocean containers being cleared last month in those cities – largely due to volume slowing down, per UP.
This allowed the railroad to catch up on the congestion, that affected the freight flow in many of the inland hubs last year.
Back in late November, UP lifted the cap on fees in seven other cities, as conditions normalized.
Why were they implemented in the first place?
UP implemented a cap on how much demurrage it would charge, because shippers were unable to access their containers in the stacks, in a timely manner.
The railroad was stacking ocean containers by the hundreds in Chicago-Joliet (in early October) and Kansas City (beginning over the summer).
What’s the outlook on chassis equipment shortages in 2023?
Many are hopeful that when UP’s operations return to normalcy, severe congestion will unlikely to resurface in the next few months.
This provides some reassurance to chassis providers that equipment shortages won’t be as significant of an issue this year. As demand falls, the number of units coming off the line from chassis manufacturers will increase.
Insight: Will the Port of Houston’s Dwell Fee be Implemented February 1?
The Port of Houston announced it will start implementing a dwell fee on February 1. The $43 fee will be charged per unit per day, starting on the eighth day after the expiration of free time.
This dwell fee is in addition to the demurrage charges for loaded import containers provided for in those subrules and does not replace those charges, the Gulf Coast port stated in an official notice. Containers will be on hold until all terminal fees are collected. Payment fees are the responsibility of the cargo owner.
As many remember, the ports of Los Angeles and Long Beach announced their own fee program back in October 2021. That fee was going to be imposed on ocean carriers if imports were left at marine terminals for longer than nine days.
However, the fee was never implemented and Los Angeles and Long Beach recently announced that they are ending the program altogether.
Throughout the better year that the program was proposed, the Southern Californian ports touted great progress in carriers clearing out containers in a timely fashion. Every month that went by, the ports would postpone implementing the fee.
Could the same be said for Houston’s dwell fee? Is the February 1 date of implementing the program a “warning shot” to pressure involved parties to clear out their cargo?
What did you think?
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