Please ensure Javascript is enabled for purposes of website accessibility
Upcoming Event

Best Places to Work in Virginia

Hamburger Menu Hamburger Menu

Tag: ocean shipping

Commentary: Navigating risk

After the chaos of the pandemic years, 2023 brought a sense of normalcy and familiar market dynamics. By December, however, the industry was reminded of the fragility of global trade. Low water levels constrained transits at the Panama Canal, and the Suez Canal became virtually impassible by global container carriers due to terrorist attacks. As of this writing, the cargo ship Dali’s March 26 collision with the Key Bridge in Baltimore halted ship traffic at the Port of Baltimore potentially for months, putting pressure on neighboring East Coast ports. Nevertheless, the industry has adjusted remarkably well to these developments. Recent capacity investments by carriers, which were expected to throw the balance of supply and demand in favor of shippers by a significant margin, have proven surprisingly critical to supply chain resilience.

The impacts of geopolitics have been on the industry’s mind for several years now, beginning with the China import tariffs, continuing through the pandemic, and especially since the onset of the Ukraine-Russia war. It is clear now that these risks to global trade are here for the foreseeable future. At the Transpacific Maritime conference in early March, the annual gathering of shipping industry players organized by S&P Global, the prevailing message was one of continued disruption and fragmented supply chains. Between rising global tensions, growing protectionist policies, and black swan events, international trade is changing and facing more risks than ever before.

The coming year brings a variety of uncertainties to shippers trying to plan their networks. The diversions from the Suez Canal are expected to continue until the attacks on commercial vessels cease, meaning longer transit times around Africa for shippers utilizing this route. The more common route from Asia to U.S. East and Gulf Coast ports, the Panama Canal, is running without significant delays inbound, though export transit times are experiencing longer transits than usual; the situation could improve or deteriorate this year, depending on weather at the canal.

Overall, with longer transits around Africa absorbing extra capacity in the market, ocean freight supply is better balanced to the expected demand this year. Ocean carriers expect modest freight rate increases to account for higher operational costs and the supply/demand balance resulting from these disruptions. Rates remain relatively favorable to shippers, with recent highs still far below the extreme peaks reached during the pandemic period. One dynamic to watch in early 2025 is the shifting ocean carrier alliance landscape. The largest carrier, MSC, will be operating on its own. Maersk and Hapag-Lloyd will kick off their new alliance, the Gemini Cooperation, which will feature a hub-and-spoke network. The OCEAN Alliance will continue with its current members, and the remaining existing alliance, THE Alliance, may bring on a new partner or retool its network as well. The overall structure is in a state of flux, and it will be difficult for shippers to plan for changes too far in advance.

On the domestic front, labor contract negotiations covering U.S. East Coast and Gulf Coast ports are underway ahead of a Sept. 30 deadline. There are concerns that these discussions could become contentious and potentially lead to labor slowdowns. If that occurs, or if sufficient concern builds and convinces shippers to shift cargo to avoid potential slowdowns, the U.S. West Coast gateways will feel the pressure of a cargo surge. Further, any deterioration of conditions at the Panama Canal could put similar pressure on West Coast infrastructure.

There are plenty of risks ahead. Most industry experts agree that while the global market is showing significant resilience considering recent developments, any additional major disruption could push the system over the edge and create bottlenecks reminiscent of the pandemic era. Supply chain managers are advised to stay close to information, close to partners, and constantly evaluate contingency plans. Strong partnerships are always a good idea, and they will be more critical than ever as the global trade landscape changes.

Rachel Shames is vice president of pricing and procurement at CV International, a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.

Zim announces $30M expansion

Zim American Integrated Shipping Services Co. LLC will invest $30 million to expand its U.S. headquarters in Virginia Beach, creating several hundred jobs over the next five years, Gov. Glenn Youngkin announced Tuesday.

The expansion includes a move from Norfolk, where the company has had its U.S. headquarters since 2001. Zim is a publicly-held subsidiary of Israeli international cargo shipping company Zim Integrated Shipping Services Ltd. The company employs about 280 in Norfolk.

“It was a priority for Zim American Integrated Shipping Services Co. LLC to retain its headquarters in the commonwealth and secure employment opportunities in the Hampton Roads region for years to come,” Youngkin said in a statement. “Virginia is a leader in supply chain management thanks to our infrastructure, robust transportation network and world-class Port of Virginia, and Zim is a vital shipping partner that advances our position in this important industry. We are pleased that Zim will continue its growth in the commonwealth.”

Founded in Israel in 1945, Zim is a global container liner shipping company with operations in more than 90 countries and it serves more than 34,000 customers at more than 300 ports. The Hampton Roads Alliance helped recruit Zim to the region 22 years ago. The company completed its move to Norfolk from the World Trade Center in New York City two weeks before the Sept. 11, 2001, terror attacks, according to a news release from the Virginia Economic Development Partnership.

“The Hampton Roads Alliance congratulates Zim on its growth plans and its decision to continue to headquarter its United States operations here in the Hampton Roads region,” Doug Smith, president and CEO of the Hampton Roads Alliance, said in a statement.

In December 2022, ZIM purchased a 70,000-square-foot office building on 4.16 acres from 4425 Corporation Fee LLC for $12 million, according to a January announcement from Cushman & Wakefield | Thalhimer, which brokered the sale of the property at 4425 Corporation Lane. According to an economic impact study prepared for the company by Old Dominion University’s Dragas Center for Economic Analysis and Policy, Zim added about $1.16 billion to the state’s economy between 2009 and 2019.

“We are very pleased with the purchase of this first-class new office building, which will serve our growing shipping business in the U.S., a pivotal country for our strategy and our global network,” Zim President and CEO Eli Glickman said in a statement. “The new office will provide a first-rate work environment for our valued employees, as they continue to deliver our signature personal, top-quality service to customers. This office expansion is vital to Zim’s commitment to the North American market and to the expansion of our capacity in the region with our new LNG- Green Energy vessels fleet.”

VEDP worked with Virginia Beach, the Hampton Roads Alliance and the General Assembly’s Major Employment and Investment Project Approval Commission to secure the project. Youngkin also approved a $1.4 million grant from the Commonwealth’s Opportunity Fund to assist Virginia Beach with the project. Zim is eligible to receive benefits from the Port of Virginia Economic and Infrastructure Development Zone Grant Program. Virginia competed against several other states for the project.

“The Hampton Roads region’s strategic location and proximity to the Port of Virginia will help align Zim American Integrated Shipping Services Co. LLC for further growth in the U.S. market, and we are proud that this global shipping leader will remain and expand in the commonwealth,” Virginia Secretary of Commerce and Trade Caren Merrick said in a statement. “A pro-business environment, robust workforce and effective collaboration are the hallmarks of economic development in Virginia, and this significant project will make the commonwealth even more attractive for additional investments in the logistics sector.”

Choppy waters for ocean shipping

What a difference a year makes. In March 2022, ocean freight rates were at record highs, with capacity straining under the weight of historic U.S. import demand. High inventories and economic uncertainty prompted importers to pull back over the summer months, and volumes slowed.

A spectacular rate collapse in the ocean freight market from Asia to the U.S. followed; freight rates are now below pre-pandemic levels on many trades — even below ocean carrier break-even levels —  and import demand growth continues to slow.

Shippers and ocean carriers now find themselves in a familiar situation, reminiscent of the pre-2020 years marked by overcapacity and low rates that were favorable to shippers. The carriers, flush from the past two to three years of record profits, have new vessels on order that are expected to contribute to an overall net capacity increase of 8% to 9% globally and a continuation of overcapacity on most trades.

Within the past year, the Ocean Shipping Reform Act and consumer-focused positions taken by the Federal Maritime Commission have contributed to optimism among shippers; the current shipping environment seems, in many ways, more favorable to shippers than any in recent memory.

While the dynamic feels familiar, a variety of risks abound that define a new international shipping landscape. The impacts of COVID-19 disruptions — especially in China — and geopolitical concerns are prompting more shippers to diversify their sourcing where possible and consider near-shoring.

A long-awaited labor contract for U.S. West Coast ports has been under negotiation for a year, with no deal in sight; many shippers have shifted their routings to avoid West Coast uncertainty. Port congestion has improved significantly since volumes have slowed, but the pandemic volume surge revealed infrastructure vulnerabilities that threaten to disrupt supply chains in the future if left unaddressed. 

The world’s two largest ocean carriers, Maersk and MSC, announced in January they will wind down their alliance over the next two years, and changes to the other two main shipping alliances, both formed in 2017, are expected to follow. Dissolution of the alliances would likely lead to carrier consolidation in the coming years, meaning even less competition on the supply side. MSC, now the largest and fastest growing global carrier, is positioned to dominate. 

Diversification, always important, will play a critical role in the new landscape. Utilizing a variety of logistics providers, sourcing options and routing flexibility will be essential to maintaining a healthy, efficient supply chain. The past few years of supply chain extremes have proven that almost anything is possible and that long-term partnerships are still key to successful global trade.

Rachel Shames is vice president of pricing and procurement at CV International Inc., a freight forwarder, customs broker and non-vessel-operating common carrier headquartered in Norfolk.