As we bid farewell to 2023, I think it’s important to pause and reflect on the past year and consider how we might prepare for the future.
2023, with its ups and downs, passed with much less volatility compared to previous years. As things largely returned to “normal,” we saw ocean carriers more keen on reestablishing relationships with the forwarding community, and truckers became eager to negotiate pricing for last-mile deliveries as capacity equalized. Improved availability and movement of goods reduced inflationary impacts on freight rates and the US economy in general. However, events around the world continue to affect all economies.
Regrettably, the year was largely defined by geopolitical tensions, creating a unique set of challenges for supply chains. The ongoing war in Ukraine and the recent Israeli-Palestinian conflict have caused significant delays, disruptions, and caution in moving goods through those trade lanes.
Delays are expected to be more prominent than ever in the upcoming year, with severe congestion and delays on cargo moving through the Panama Canal due to drought which is expected to continue through February 2024. Additionally, rerouting via the Suez Canal is anticipated to add at least an additional week of transit time as will routing via the US West Coast. The attacks on container ships in the Red Sea by Yemen targeting Israeli ships have led many carriers to avoid that route altogether. As much as 30% of container volume moving between Europe and Asia goes through the Red Sea and Suez Canal. With all the rerouting and delays, it will disrupt regular schedules, causing vessel cancellations, equipment imbalance, and additional strain on the Chinese New Year push.
Uncertainty in China including their continued strained relationship with the US, the close monitoring of their economy, and any possible impact of COVID are crucial. Importers are wise to continue shifting their reliance away from China. Current 301 duty exclusions still in place for 301 duties were set to expire at the end of this year but were renewed by the Biden administration in the 11th hour while they continue to review comments from stakeholders and recognize the impact of these additional tariffs. It’s encouraging that there may be some consideration of making concessions to these burdensome tariffs, yet a new administration could easily shift things in the other direction next year.
Freight rates overall are expected to remain stable, if not weak, through 2024, but several factors will drive them up in the short term, including the strain on moving cargo to the US East Coast due to rerouting, Chinese New Year volumes, and all the transit delays driving an increase in demand for airfreight, especially for goods that need to ship before the Chinese New Year rush. This is causing airfreight rates to jump up in particular. The conflicts in Central Europe and the Middle East also have an impact on oil & gas prices.
Looking ahead to 2024, you may need your crystal ball to decide if you want fixed rates for 2024 or want to take your chances with the spot market rates. The carriers aren’t interested in going too low with their fixed rate offerings and are offering rates above the current spot rate pricing. If the market rates continue to stay low or even drop, it would be disadvantageous to have too much of your volume in a fixed-rate contract. With spot rates vs. fixed, you will have more flexibility in rerouting your cargo and looking for different carriers or routing options as opposed to a dictated service via a fixed rate contract. It will be interesting to see how willing to negotiate the carriers are as we get closer to contract season in April and May.
As an industry, we are all focused on AI, digitalization, and methods to improve visibility and processes. The pandemic and subsequent supply chain disruptions taught us the critical importance of sharing information for making pivotal decisions in an evolving business landscape. Resiliency remains key in managing the external forces impacting supply chains and business. At M.E. Dey, we’ve invested in new technology and resources to enhance our service and visibility for our business partners.
M.E. Dey is committed to providing you with the latest information, breaking news, and staff resources to support your business. We are grateful for you—our customers, vendors, and overseas partners who continue to be strong allies in success. Wishing you all a healthy and prosperous New Year!
With warm regards,
President, Managing Director
M.E. Dey & Co.