Freight for Thought: Orsted scraps FlagshipONE eMethanol Project

The following insights are provided by Sunset Transportation’s Strategic Account Management team for August 2024.

Trends and discussions range from seasonal manufacturing and agriculture trends that affect available capacity to general insight into outside factors affecting freight volumes.

MARITIME

• Citing global and domestic concerns, U.S. importers are pulling orders forward to bring containerized freight into the U.S. as early as possible. The situation in the Red Sea is getting worse every day; worries about the ability of crew ships and concerns about labor at East and Gulf Coast ports add additional difficulty.  Air cargo rates will likely remain elevated through the remainder of 2024 as these conditions drive shippers to advance orders ahead of the traditional ocean peak season. Ocean container rates will continue to rise until capacity is more manageable; late 2024 or early 2025.
• Orsted’s FlagshipONE Project, intended to be Europe’s largest methanol production plant, has announced they will be abandoning the project, citing slow market progress and an inability to sign long-term offtake contracts. The decision to not move forward with this facility is a major setback in the drive and ability to achieve carbon emissions goals worldwide.
• In June, the U.S. Supreme Court overruled the ‘Chevron doctrine’, which had been in place for 40 years. This means all federal agencies, including the Maritime Administration and FCMA, can no longer rely on their own interpretation of their powers when the law is not clear. The FMCA’s response to the appeals court decision can be challenged, but only heightens the likelihood of more court challenges ahead.  
• Strong US inventory building is taking place, but not to the point which would cause corrective drawdown. This inventory growth is being driven by stock finally dipping below normal levels since 2022, current port congestion, timing of the holiday shopping season, and proactive frontloading of imports due to labor issues on the East and Gulf coasts.
• The Port of Portland hopes to introduce a third-party operator to run its container terminal by early 2025.  Last week, the port submitted a business plan to Oregon Gov. Tina Kotek, as part of their conditions after receiving a commitment of $40M in state funding to keep the T6 terminal open. After two years of losses for T6, the port had planned to close the terminal by October, which would have cut off Portland from trans-Pacific container services. 

INLAND

• After a significant tightening in capacity at the end of June, transportation capacity opened slightly in July according to the Logistics Managers Index (up 0.9 to 50.9 from 50.0 in June).  This was expected as many carriers purposely exit the market at the end of quarter.  In addition, Transportation Prices once again increased (+2.8), reaching 63.8, their highest level since mid-2022. This is another marker that the industry is continually gaining strength.
• Cargo theft continues to climb, rising 49% YoY in the first half of 2024 as thieves become skilled at targeting high-value goods.  The financial toll of cargo crime is also soaring, with the average loss per incident jumping 83% YoY to $115,230.
• Strong U.S. inventory building is taking place, but not to the point which would cause corrective drawdown. This inventory growth is being driven by stock finally dipping below normal levels since 2022, current port congestion, timing of the holiday shopping season, and proactive frontloading of imports due to labor issues on the East and Gulf coasts.
• The growth of high-tech manufacturing and cross-border trade with Mexico is resulting in more logistics investment into the Phoenix, AZ area.  In the past five years, 45 companies have moved into the ‘303 Corridor’, adding more than 15,000 jobs.  This industrial surge has also inspired logistics companies to open or relocate to the area.  More growth is expected, as land in Phoenix remains readily available.
• Many carriers have implemented a peak season surcharge on shipments coming out of Southern California.  In most cases, these charges are <$500 but go up to $2,000 in some cases.  These are being applied because of diminishing truckload capacity in SoCal.  In the meantime, rail rates are decreasing as truckload rates and available capacity increase, making Intermodal a potentially cost saving option if time to delivery is not an issue. 
• FedEx and UPS have both published higher surcharges for peak season this past month. 

Labor Disputes

• Over the last week, the Canadian Rail Strike saw significant developments and de-escalations.  After serving Canadian National Railway (CN) with a 72-hour strike notice on Friday, the Canada Industrial Relations Board (CIRB) intervened, imposed binding arbitration between the two railroads and the union, and ordered that no further labor stoppage can occur during this time.  The government stepped in to minimize economic disruption since both companies and the union were unable to negotiate a settlement independently.
• Risks of a Canadian Rail Strike:
  • Cost to the Economy: A similar strike in 2019 was estimated to cost the Canadian economy around CAD $3B over eight days. With inflation and increased economic activity, current costs could be even higher.
  • Agriculture: Canada is a major exporter of grains and other agricultural products. Railways move about 70% of grain exports, so a strike could delay shipments, leading to storage issues and potential losses for farmers. Approximately 50-70% of grain exports could be disrupted.
  • Energy Sector: Railways transport about 20% of Canada’s crude oil. A strike could cause significant delays in oil shipments, potentially reducing exports by up to 10-15%.
  • Manufacturing: Key manufacturing sectors, including automotive, rely heavily on rail for transporting raw materials and finished goods. Disruptions could lead to production delays, potentially reducing output by 5-10%.
  • Port Congestion: With rail transporting over 50% of containerized imports and exports, ports could see significant congestion, leading to delays and increased costs for shippers.
  • Rising Costs: Disruptions in transportation could lead to shortages of goods, driving up prices. This could contribute to inflationary pressures, particularly in sectors like food, energy, and consumer goods.
• Maritime employers along the US East and Gulf coasts say they are prepared to offer “industry-leading wage increases” and other benefits as part of a new master contract for longshore workers. But the ILWU says talks on a new six-year deal remain at an “impasse” over salary questions and the ongoing dispute with APM Terminals over its use of automated gate technology at the Port of Mobile.
• The ILA has set a date of October 1 if a new contract agreement is reached by that time.  This does give negotiators time to make a deal and avoid a strike.
• The USMX stated there is ‘forward movement’ toward resolving some of the issues that have stalled talks recently, primarily the use of automated truck gates at ports.

KEY LOGISTICS INDICATORS

Industry data is pulled and summarized weekly from key proprietors and industry experts using multiple publications and sources. Sources include, but not limited to: FreightWaves, U.S. Energy Information Administration (EIA), DAT, Journal of Commerce (JOC), Reuters, PYMNTS, NRF, Bloomberg. The information is discussed with Sunset Directors and validated prior to publication of summary data in this posting.