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Supply Chain Capacity Tightening Up Again

Supply Chain Capacity Tightening Up Again

With carriers chartering multi-purpose ocean vessels normally used for breakbulk shipping, in a smaller replay of the pandemic effect, declining ocean freight capacity continues to be felt throughout the supply chain. In a related development, the CEO of major ocean freight carrier Maersk warns that the capacity issue will continue for the months ahead. This is sure to affect retailer shipments ahead of the busy Q4 peak. Here’s more on this week’s industry news.

Container Carriers Chartering MPVs To Make Up for Capacity Shortfall

Major ocean carriers are again chartering multi-purpose vessels (MPVs) normally used for breakbulk shipping, in order to plug gaps in capacity. That’s according to the Toepfer Multipurpose Index (TMI) as reported by the Journal of Commerce (subscription required), with charter rates approaching $13,000 per day. 

According to JOC, the TMI reached a peak of $23,099 in July 2022, as carriers scrambled for MPVs to add capacity and meet skyrocketing demand. While rates aren’t expected to approach those astronomical figures, they’re still well above the pre-pandemic low of under $6,500 per day in the TMI index.

Meanwhile, the Port of Singapore has opened nine berths at its automated Tuas Port facility, the latest on July 1. The port authority has also reopened previously shuttered berths at two other terminals, in a bid to reduce growing wait times for simultaneously arriving cargo ships, due to Red Sea disruptions.

Maersk CEO: Red Sea Disruption Will Continue to Cause Challenges For Months

Maersk CEO Vincent Clerc told customers that supply chain challenges will continue in the coming months as the majority of cargo ships normally transiting the Red Sea divert around the horn of Africa, causing a worldwide ripple effect of reduced capacity.

Clerc called it a difficult situation for both carriers and shippers, impacting businesses and economies worldwide.

“Today, all ships that can sail and all ships that were previously not well utilized in other parts of the world have been redeployed to try to plug holes,” Clerc said. “It has alleviated part of the problem, but far from all the problems across the industry, including for Maersk. We are going to have in the coming month missing positions or ships that are sailing that are significantly different in size from what we normally would have on that string, which will also imply reduced ability for us to carry all the demand that there is.”

Clerc noted that once the situation returns to normal, temporary port congestion will follow as ships already in transit on the longer routes will arrive in the same ports as those returning to the Red Sea passage. 

San Diego Logistics Firms Fined By DOL For Under-Paying Workers

Three San Diego logistics companies were ordered to pay a total of $840,000 in back wages and fines by the Department of Labor. A DOL investigation found the companies were paying Mexican warehouse workers below the federal minimum wage of $7.25 an hour, in some cases less than $3 an hour. The fines were leveled as the treatment of warehouse workers is drawing more federal scrutiny.

Ruffo de Alba Forwarders, a customs broker providing logistic and transportation services; SAI Logistics Experts, a broker assisting the cross-border goods transport; and Moving Technologies of America, a transportation and distribution firm, each was found to be paying substandard wages and/or withholding overtime pay. The DOL’s Wage and Hour Division found that all three companies violated numerous provisions of the Fair Labor Standards Act.

Since 2021, DOL has recovered over $5 million in back wages and damages for more than 300 workers at customs warehouses, logistics, and freight forwarding companies in the San Diego area. The department has seen “a troubling increase in wage theft by customs brokers and freight-forwarding and logistics companies operating near the Mexican border.”

Shein, Temu Facing Fire on Multiple Fronts

Chinese fast fashion giants Shein and Temu continue to draw regulatory attention both in the U.S. and Europe over the alleged use of forced labor – which both companies deny – as well as their use of consumer data. 

On the logistics front, both firms are growing so rapidly that they’re sucking up much of the available air freight capacity and driving up rates for everyone else. According to a May report from Forbes, Shein and Temu used a combined 9,000 tons of air freight each day from airports in southern China, compared to 1,000 tons daily from Apple. 

Another knock on Temu and Shein from retail competitors: they skirt import charges by shipping products directly to consumers here and in Europe that are valued below the de minimis threshold. Officials here and in the EU are considering lowering or eliminating the thresholds. Amazon, in a shot at both firms, plans to imitate the competitors by shipping directly from China.

UPS Network Overhaul Causing Layoffs, Consolidation

UPS’s plans to close a sortation center in Baltimore and to consolidate operations in Worcester, Mass., are part of a broader network overhaul and reorganization that will save an estimated $3 billion a year. Investing in and deploying automation automation in its hubs and sort centers is a big part of that plan, as more parcel volume is being handled by machines. The company acknowledges that jobs eliminated in 2024 likely won’t be coming back. 

The recent sale of UPS freight forwarding unit Coyote Logistics to GXO for $1 billion – $800,000 less than its 2015 acquisition price – is seen as part of the ongoing restructuring of the network. Coyote, like many other firms, has been hit hard by the two-year-plus freight recession brought on by lower consumer demand.

Familiar Challenges Likely To Continue for Retailers

Market volatility continues to be the watchword in logistics and supply chains, as disruptions, capacity crunch, and rate spikes are the likely near-term results. Government scrutiny of warehouse labor practices will result in more charges and fines, even as increasing automation reshapes the logistics workforce. 

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