Weekly Newsletter

A rare FMC case…China United Lines claims that Amazon unexpectedly walked away from an ocean services contract as freight rates nosedived in 2023, according to a complaint the independent carrier filed with the FMC. The carrier further claims Amazon avoided paying $31.5 million in damages for exiting the service contract. The complaint is a rare instance of a container line accusing a shipper of not living up to a service contract. CU Lines alleges Amazon violated our shipping laws by falsely obtaining competitive ocean freight rates through a service contract that Amazon could not fulfill. CU Lines’ complaint, served last week, said that Amazon entities acting both as a shipper and a non-vessel operating common carrier (NVO) entered into a two-year service agreement with CU Lines covering the 2022 and 2023 contract years. Primarily operating intra-Asia networks, CU Lines was one of several niche carriers that entered the Transpacific market in 2021 thanks to the strong rate environment at the time. However, CU Lines ended its service in 2023 as spot rates began dropping. The carrier offered Amazon “substantially lower rates” than its published tariff rates based on the “significant volumes of cargo” that it would ship, the complaint said. The contract outlined MQCs and terms for early termination of the contract. Amazon, though, wanted to cancel the contract in 2023 after CU Lines said that spot Transpacific rates fell below the rates in the service contract. The cancellation required Amazon to pay for the unused MQCs, which CU Lines says amounted to $31.5 million.

Market expectations are that following the 3 million TEU delivered last year and some 1.8 million TEU due to be delivered this year, vessel scraping will begin in earnest and will continue at a fast pace until 2027.

Momentum is downshifting in our offshore wind industry in anticipation of an executive order to halt development in the sector immediately after the inauguration of Donald Trump as president. On Jan. 15th, power-purchase contract signings set to take place that day for a pair of offshore wind projects in Massachusetts and Rhode Island were pushed back until March 31. The decision marks the second time since November that utilities and state officials have delayed the contracts for the two projects.

Louis Sola has been elevated from commissioner to chairman of the FMC after being appointed last week by President Trump to lead the maritime regulator. Sola was nominated to the FMC in November 2018 during Trump’s first term. While he has focused more on cruise ships than container ships, he has also shown an interest in maritime fuels, US freedom-of-navigation and export markets. Sola will replace Daniel Maffei as chairman. Maffei, a Democrat, has been at the FMC since 2016 and was appointed chairman in 2021 by President Joe Biden. Just ahead of Trump’s election in November, Sola laid out “America First” initiatives during an October speech, highlighting the further development of liquefied natural gas (LNG) export facilities and the impact on maritime bunkering. He also addressed the role of shipping in supporting US exporters and trade relations between the US and Latin America.

President Trump said on Tuesday that he intended to impose a 10 percent tariff on Chinese imports into the United States on Feb. 1, a decision that is sure to escalate trade tensions between the world’s largest economies.

Most ocean carriers on the eastbound Transpacific trade are extending current spot rates through the end of January for large volume movers. This is a sign that the carriers are losing pricing strength even before the trade enters what is typically its weakest month of the year. Some carriers are even offering these volume customers guaranteed rates into mid-February. Container spot rates have been falling since January 1st with prices from North Asia to the USWC down more than 15% since the 1st. 

Maersk Line will continue to divert vessels away from the Gulf of Aden and Red Sea and toward the southern tip of Africa despite Yemen's Houthis announcing they will curb their attacks on ships. The Danish shipping company said the announcement by the Iran-backed militant group was a very welcome step in the right direction towards stability and eventual normality for the global shipping industry. However, it said the security risk for commercial vessels transitioning the Red Sea and Bab-el-Mandeb strait remains high. With that in mind, and the safety of their crew, vessels, and the cargo being their utmost priority, Maersk will continue to sail around Africa via the Cape of Good Hope until safe passage through the area is ensured for the longer term. Houthi attacks on merchant ships were justified by the group as an action in support of Hamas, punishing Israel for attacks on Gaza. The Houthi commitment to end attacks on shipping is dependent on the Israel-Hamas ceasefire, introducing risks to ships in the event of an actual or perceived contravention of the ceasefire from any side. A ban on transiting the Bab-el-Mandeb Strait and surrounding area remains in place for Israel-owned and -flagged vessels but has been lifted for ships affiliated with Israel’s allies and ships calling at Israel’s ports. The Houthi said Israeli ships will be allowed passage once all phases of the peace agreement have been concluded. Houthi military action in response to a perceived breach of the ceasefire agreement by Israel remains possible and would highly likely impact Israel-affiliated shipping first. The Houthi have not specified how they intend to prevent an Israel-owned or -flagged vessel from transiting the Bab el-Mandeb. The attack of such a vessel, or a flashpoint escalation, is assessed as possible to result in an Israeli airstrike against the Houthi.

With the Gemini Cooperation set to officially launch on Feb. 1, repositioning of ships is under way, thus kicking off one of the boldest and riskiest gambits the container shipping industry has seen in a long time. By promising 90%-plus schedule reliability using a hub-and-spoke network, the Maersk/Hapag-Lloyd alliance is moving away from the competition in attempting to fix the problem of unreliable schedules that continues to plague the industry for the last 4-5 years. The questions hovering over that strategy and its chances of success fall into two main categories. The first is whether the concept can deliver operationally; in other words, when fully implemented by mid-year, will it achieve the promised 90%-plus schedule reliability? Remember this comes at a time when the industry average was 55% as of November, with Maersk and Hapag-Lloyd themselves not much different. The second, assuming it succeeds operationally, is whether it will find a market large enough to keep its ships filled without having to chase market share in what may be a weak 2025 market, and possibly even extract a premium at some point if the reliability is so consistent it can influence inventory decisions. Boy, those were the days. Operationally, a key factor in favor of the concept is the two carriers’ ability to rely on each other to be committed to schedule integrity. In the past, when that was not the case, those partnerships broke up. According to PT at the JOC, the mutual commitment appears to be real. Maersk has a long history of prioritizing schedule integrity, a principle espoused by its patriarch Maersk McKinny Moller, known to employees as Mr. Moller. Historically, going back to working in Philadelphia in the late 70s and early 80s, you could tell time by when Maersk was coming up the river.

In a statement following President Trump’s inauguration speech, Panama President Mulino issued a clear rejection of the President’s statement of intent regarding the canal. “I must fully reject the statements made by President Donald Trump regarding Panama and its Canal during his inaugural address. “The Canal is and will continue to be Panamanian, and its administration will remain under Panamanian control with respect to permanent neutrality. There is no presence of any nation in the world interfering with our administration. The Canal is not a concession from anyone,” President Mulino said. The closest China comes to control of the canal or areas around it is that Hong Kong-headquartered Hutchison Ports administers the ports of Balboa on the Pacific side and Cristobal on the Panama Canal Atlantic entrance through subsidiary Panama Ports Company (PPC). A 25-year concession for PPC by Panama was renewed in June 2021.

Our ports this week laid out legislative priorities for the incoming Trump administration and new Congress that include continued federal spending for maritime transportation and navigation. While many of the priorities of the American Association of Port Authorities (AAPA) align with the president-elect’s campaign pledges, issues such as tariffs and clean energy funding at ports may face more challenges. AAPA said it met with Trump’s transition team and US Department of Transportation nominee Sean Duffy to discuss its policy agenda for 2025. Among the group’s asks are permitting reform, easing restrictions on liquefied natural gas (LNG) development and reducing restrictions on vessel speed. AAPA said one of its top priorities is infrastructure spending. It asked Congress not to rescind infrastructure spending from the Inflation Reduction Act and the Bipartisan Infrastructure Law (BIL), two hallmark pieces of legislation from the outgoing Biden administration. BIL earmarked $17 billion specifically for ports through 2026, with the largest portion of that going to the US Army Corps of Engineers for maintenance of coastal and inland waterways. Some $2.25 billion of that law was funneled into the Port Infrastructure Development Program (PIDP), which has already issued $2 billion in grants since the BIL’s passage. The AAPA also asked that other funding programs for ports, intermodal rail, and roads be maintained.

Container volume at the port of Hong Kong dropped 4.9% to 13.69 million TEUs last year the lowest volume since 1996.

Checking fuel prices, the national average diesel price is $3.72 a gallon compared to $3.49 one month ago and is down $0.12 compared to one year ago. East Coast diesel prices are averaging $3.82 per gallon. The average price in the Midwest is $3.65 per gallon. California diesel prices are averaging $4.81 per gallon.

January 21st shows current national van rate averages are at $2.19 per mile, $0.08 more than the December average. The highest average van rates are in the West at $2.43 per mile and the lowest average van rates are in the Northeast at $2.00 per mile.