In 2024, risk will impact various modes of transportation due to factors such as geopolitics, labor negotiations, freight demand, and capacity changes, leading to adjustments in supply chain strategies for various kinds of industries, including the chemical sector
Issues such as labor disputes, geopolitical uncertainties, and imbalances in freight supply and demand are leading logistics managers to reassess their supply chain strategies in 2024.
Transportation methods such as sea and air shipping are still facing challenges due to the Red Sea crisis, each in their own unique manner. Amid ongoing labor disputes in various logistics industries, logistics managers should be prepared to adapt.
Engaging in discussions with multiple experts about the potential risks for the upcoming year, Supply Chain Dive compiled a list of eight key logistics trends to keep an eye on in 2024.
1. Red Sea Crisis Jeopardizes Shipping Costs
The current situation in the Red Sea presents a challenge for ocean freight, as shippers are worried about rates and shifts in vessel schedules.
“We are currently seeing notable rises in indices and freight rates on certain routes, which raises worries that carriers could use this situation to raise sea freight pricing overall,” shared Patrick Lepperhoff, a principal at Inverto, with Supply Chain Dive.
Ever since the vessel attacks started in the Red Sea, ocean shipping rates have increased substantially, and many carriers have added extra surcharges. Some companies such as Ikea have already experienced delays due to constraints on specific products.
Lepperhoff mentioned that even if the situation in the Red Sea goes back to normal, shipping companies could encounter challenges for months.
The Suez Canal blockage in 2021 lasted approximately six days and caused disruptions to the schedules of ports in the Mediterranean and North Sea for several months. This situation has already gone on for a longer period of time.
Containers are stacked on a ship at the Port of Oakland.
The situation in the Red Sea has prompted ocean carriers to change the routes or timing of shipments, resulting in extended delivery times and increased prices.
Photo by Justin Sullivan via Getty Images
2. Dealing with Restrictions in the Panama Canal Can be Quite Complex.
Despite ongoing drought restrictions at the Panama Canal, cargo diversions are occurring and potentially leading to delays.
Ships passing through the main waterway are now restricted to 24 slots per day, as per a Dec. 15 notice from the canal. The allotment has decreased from the pre-drought capacity of over 30 ship transits per day. Authorities anticipate transit capacity will decrease to 18 slots per day by February.
The crisis in the Red Sea has made it difficult for shippers to make decisions. Businesses interested in importing cargo from Asia to the U.S. East Coast may have considered the Suez Canal as an option instead of the Panama Canal. However, the other option is now also considered dangerous, following recent attacks on ships traveling through the Red Sea shipping channel, prompting major carriers to change routes or stop transit.
According to a report from Moody’s Investors Service on Jan. 24, customers experience 30%-40% longer sailing times and increased costs to trade with Asia due to lack of access to the canals.
Also Read : Water Drought and Its Impact on The Supply Chain
3. Labor Negotiations at East Coast Ports are a Significant Concern
Continuing labor negotiations are still a concern for ocean shipping because of the upcoming East and Gulf Coast port labor discussions.
The labor contract between the International Longshoremen’s Association and the United States Maritime Alliance is scheduled to end on Sept. 30. According to a statement from the ILA, members have been advised to get ready for a potential coast-wide strike in October 2024.
In case of a strike, port congestion may happen, as mentioned by Brian Whitlock, senior research director at Gartner, to Supply Chain Dive. This situation could also result in East and Gulf Coast ports losing the volume they had gained during the West Coast labor negotiations.
“I believe labor actions will continue to be a significant factor affecting ocean shippers and other modes,” Whitlock stated.
4. West Coast Ports Could See Increased Congestion
Analysts believe that U.S. West Coast ports may experience a surge in volume in 2024 due to drought-related restrictions in the Panama Canal, the duration of the Red Sea crisis, and East and Gulf Coast port labor uncertainty, potentially leading to congestion.
West Coast ports have experienced an increase in volume due to shippers redirecting cargo. On January 10, Gene Seroka, the Executive Director of the Port of Los Angeles, mentioned that the West Coast market share has increased by 3% in comparison to East and Gulf Coast ports.
Intermodal consultant Lawrence Gross mentioned that he wouldn’t be surprised if intermodal volumes moving through truck and rail also surged as volumes shift. However, increased container traffic may result in some congestion, but trucking companies have sufficient capacity and have added chassis in preparation for growth.
On the other hand, West Coast ports anticipate a resurgence in cargo for 2024 and are making necessary preparations.
“Cargo has returned to the West Coast and we are determined to keep it here,” stated Port of Long Beach CEO Mario Cordero during the State of the Port 2024 event on Jan. 17.
5. Trucking Companies are Still Facing Challenges with Overcapacity
The trucking industry experienced a contraction throughout 2023, as both large and small carriers exited the market due to bankruptcy, closure, or acquisition.
Some experts anticipate that the trend will persist in 2024. According to Jonathan Phares, an assistant professor of supply chain management at Iowa State University, a high rate of transportation employment could indicate an oversaturated market with many drivers and companies vying for business during a slow freight market cycle.
This is great news for shippers, according to him. Having enough capacity could mean that spot and contract rates stay the same.
Recent measures taken by the Federal Reserve seem to have helped with inflation, but they have not had an impact on manufacturing employment, according to Phares. If interest rates stay high and industrial production slows down, it could result in decreased trucking demand and capacity.
If this happens, Phares mentioned that shippers might experience a decrease in spot rates until demand surpasses trucking supply. If the Federal Reserve lowers rates and manufacturing production stays high, shippers might keep experiencing low spot rates with ample capacity.
6. Labor Disputes Pose a Risk for Parcel Delivery Networks
Following tense contract discussions between UPS and the International Brotherhood of Teamsters last summer, there are expected to be further disagreements between management and labor in the parcel delivery industry this year.
FedEx Express and the union representing its pilots are currently in discussions for a new contract agreement following the rejection of a tentative deal in July. The mechanics at the FedEx unit are currently working on an organizing campaign to become members of the Teamsters. The labor union is currently focused on organizing workers within Amazon’s extensive logistics network. They are drawing attention to an unfair labor practice strike carried out by delivery drivers at an Amazon contractor who approved a union contract in 2023.
“Amazon should take notice because there are more developments on the way,” remarked Teamsters General President Sean O’Brien in December 2023.
It is yet to be determined if these battles will lead to operational disruptions. However, the mere possibility of a strike prompts shippers to quickly seek out other carriers. In a recent earnings call, Brie Carere, EVP and Chief Customer Officer, mentioned that FedEx gained 400,000 packages’ worth of average daily volume from UPS because of the strike risk at UPS.
“We are monitoring all accounts that we won, particularly due to their concerns about the labor negotiations,” Carere stated. Most of them had an early termination clause. As far as I know, we have not lost any of those accounts.
7. Air Forwarders are Keeping a Close Watch on the Increasing e-commerce Activity
The future of the air cargo market is still uncertain, despite the recent stabilization in volumes after a sharp decline last year.
Anticipating a return to classic seasonality in 2024, albeit in a subdued manner. When unveiling Xeneta’s 2024 Air Outlook, Niall van de Wouw, chief airfreight officer at Xeneta’s Clive Data Services, mentioned that “2024 could be an opportunity for shippers to catch their breath after the volatility of the past few years.”
Even though the turbulence in the air cargo industry may have calmed down, it’s important to remain vigilant for potential risks.
“The biggest challenge will be capacity and the impact of the e-commerce players — most notably Shein, Temu, and Tik-Tok,” Marc Schlossberg, EVP of air freight at forwarder Unique Logistics, shared with Supply Chain Dive in an email. Their strong demand for capacity and willingness to pay premium prices is causing traditional air freight shippers to be sidelined. Over the past 90 days, e-commerce demand consistently reached 10,000 tons per day at its peak.
Schlossberg also pointed out that e-commerce is expected to grow by 20% to 30%, with these companies utilizing 30% or more of global capacity. As technology typically advances every three to four years, and with many people enhancing their home workspaces due to the pandemic, consumers might be considering upgrading their tech gear soon.
“When a resurgent high tech market clashes with the rising behemoths of e-commerce, things can escalate rapidly,” the EVP remarked.
8. Forwarders Cautious about Geopolitical Risk
Schlossberg mentioned that continuous geopolitical risks, such as conflicts in the Middle East and Ukraine, contribute to market unpredictability, making it more challenging to provide advice to customers.
Market risks to watch out for include growing strike activity and U.S.-Mexico border congestion caused by increasing nearshoring activity, according to Mike Short, president of global forwarding at C.H. Robinson, as reported by Supply Chain Dive.
Even though the air cargo market is influenced by e-commerce demand, geopolitical risks, and other external factors, shippers can take steps to set themselves up for success.
Schlossberg suggested utilizing hard block BSA and charter capacity, along with sea-air and air-sea consolidations and other charter products, as potential mitigation strategies for unexpected disruptions.
Meanwhile, Short emphasized the importance of focusing on the events that necessitate a change in the plan rather than the plan itself.
“For 2024 planning, we suggest that shippers concentrate on building agility and developing contingency plans,” he advised. “We can’t foresee what lies ahead, but we understand that being resilient is crucial for ensuring the continuous flow of goods during times of disruption.”
Conclusion
The chemical industry, as one of the most needed industries in the supply chain scheme, will, of course, be impacted by the recent emerging risks in the trading and logistics sectors. Without an adaptability strategy, economics could be affected on a global scale. All chemical industry businesses need to adapt to the situation to maintain the sustainability of their own industry and various other industries.