Converging Trends Causing Rise in US Warehouse Rates

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 Source: www.joc.com

Starting this August, the industry will be looking at a steady increase in US industrial rates, thanks to numerous market trends that all seem to have costs pointing north. The freight forwarding and logistics industry is well into 2016 and already had its fair share of recession, alliance scrambling, and the notable VGM implementation. Despite the recession period, manufacturers are continuing to produce and carriers continue to deliver. So what’s the problem?

At the moment, product sales have slowed down significantly on the consumer end, which was what began this recession. Simply put, the demand for product doesn’t match the supply and the frequency of which the supplies are produced. This has caused warehouses to be filled at capacity and additional warehouse space has become a premium in the market, leading to the inverse of the aforementioned supply-and-demand problem: the demand for warehouse and distribution space is now higher, and the supply (space) remains low.

According to a Prologis report on the first half of 2016, net absorption of industrial space has been the strongest first half of a calendar year since the year 2000, sitting at an approximate 125 million square feet in the US. One trend contributing to this is the need of warehouse space for e-commerce fulfillment. Besides reconfiguring their supply chain efficiency, many retailers are outgrowing the buildings they occupy because they are looking have all their distribution in one warehouse. E-commerce distribution requires nearly three times the space of traditional distribution, and this demand of space has forced retailers to move to bigger buildings in order to maximize efficiency.

Shippers are now moving quickly to acquire warehouse and distribution space because of the demand. As inventories remain tight and warehouses continue to remain bloated with products, the demand for additional space will continue to rise. What exacerbates this situation is that, according to the Prologis report, the growth in demand will continue to supersede the delivery of new warehouse space. It seems that until the issue of inventory oversaturation is resolved, the rising industrial rates for warehouse space will continue to exist.

SOURCE: www.joc.com

Additional Information:

Growth of Inland Ports Outsized by E-Commerce, Report Says (GSA Business)

Continuous E-Commerce Expansion Yields Outsized Growth for Inland Ports (SDC Executive)

E-Commerce Growth Squeezing Tight Industrial Real Estate Market (JOC)

High US Inventories Could Be the New Normal (JOC)

Hapag-Lloyd and UASC Makes Big Splash with Merger Agreement

Hapag-Lloyd Wide

Source: www.momentumshipping.net

 

The presence of a major player in the freight forwarding industry continues to grow stronger as we enter the second half of 2016. Hapag-Lloyd, already an influential company in the industry, merged with the Dubai-based United Arab Shipping Company this Monday, creating the world’s fifth-largest container shipping line. The merger is expected to be finalized by the end of this year.

This merger will result in a fleet of “237 vessels that offers a total capacity of an estimated 1.6 million 20-foot-equivalent units, an annual transport volume of 10 million TEUs and a combined revenue of approximately $12 billion.” As owners and operators of UASC, Qatar and Saudi Arabia will own 14 and 10 percent of the merged carrier, respectively.

Rolf Habben Jansen, CEO of Hapag-Lloyd, expressed his enthusiasm for the merger, explaining the benefits that both parties will gain. For UASC, they will gain access to the immense market coverage and strong customer base that Hapag-Lloyd has built up. On the other hand, Hapag-Lloyd will receive new access to the ultra-large container vessels offered by UASC.

This merger comes at an important time for Hapag-Lloyd, which faced a net loss in the first quarter of this year and had to lower this year’s earnings outlook to a more conservative value. Recent recovery rates in July were described as “insufficient and unsustainable”, which leads many to believe that this merger is the big play that Hapag-Lloyd is betting on to generate a more profitable 2017.

Additionally, this will strengthen the competitiveness of the newly-formed THE Alliance, which also includes members “K” Line, MOL, NYK Line, and Orient Overseas Container Line. According to the June 29 Alphaliner, the merger will bolster the alliance’s market share on the trans-Pacific trade to approximately 33 percent and the market share on the Asia-Europe trade to 28 percent. With the recent legal issues the NYK Line is facing on charges of ro-ro price fixing, the alliance will need all the help it can get.

SOURCE: www.joc.com

Additional Information:

Hapag-Lloyd Warns on Profit, Seals UASC Merger Deal (Reuters)

Hapag-Lloyd Announces UASC Merger (The Maritime Executive)

Hapag-Lloyd Drops as Forecast Cut Overshadows UASC Merger Plan (Bloomberg)

Steady Trucking Decline in 2016 – A Cause for Concern?

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Source: www.joc.com

A steady decline in trucking employment since the beginning of 2016 reveals an employment plateau back in 2015. According to the data, this is not a result of lack trucking jobs, but rather a lack of freight to fill trucks. This type of year-over-year decline was last seen in the late 2000’s, when a three-decline was reversed in July 2010.

The high inventories and overcapacity issue across the globe is certainly playing a role in the weak freight demands. Shippers are definitely looking at the current and responding by actively suppressing capacity. Despite this decline, these numbers all rank slightly above the pre-recession peak in early 2007. Experts believe that is not so much a case of the market going the opposite direction, but rather, a slowed growth due to the lack of product demand. This roadblock will continue to exist until a stronger consumer demand leads to a higher freight demand.

As of June 2016, the U.S. unemployment rate is at 4.9 percent. Trucking companies are reporting increased difficulty in finding qualified drivers and workers. This is most likely a case where those in the job market are seeking opportunities that are more attractive, such as jobs in a higher-paying industry or hours that are more flexible for their needs. The wages in the transportation and warehousing sector has been steadily climbing, but the trucking companies are now competing against other companies in this “gig” economy, such as Uber and Lyft. Even more so, some truckers have been adamant about not taking any long-haul trucking opportunities, regardless of pay. It seems that the market is now leaning towards the workers and the carrier companies will have to do their best to make the job opportunities as driver-friendly as possible.2

SOURCE: www.joc.com

 

Additional Information:

Trucker Profits Fall on Weak Demand (Wall Street Journal)

Truckers Blame Declining Profits on Weak Freight Demand (Trucks.com)

Weak Long-Haul Demand Impacts Class 8 Truck Orders (Food Logistics)

SOLAS VGM Implementation Show No Sign of Delay in Europe and India

pic1Source: www.joc.com

 

According to spokespersons at Europe and India’s major ports, the SOLAS VGM implementation has not affected daily processes and there have been no hiccups or delays caused by it thus far. Although there has been a lack of guidance from SOLAS, ports and carriers have diligently prepared for the implementation, which began today. European governments have been the most proactive in this, with the U.K., Denmark, and France “releasing their expectations for shippers months ahead”.

Nadine Vos, a spokeperson for the port of Rotterdam (Europe’s biggest container hub), told JOC that there have been no disruptions at the port. However, fellow spokesperson Karl-Olaf Petters of HHLA in Hamburg warns that it is “far too early to make any final acknowledgement” regarding the success of the implementations internationally.

India has had its success in the process too, especially through proactive measures prior to today. A supplementary decree was issued by the government to give shippers more time to meet the requirements – Gateway Terminals India, the country’s busiest container handler, said that there hasn’t been any containers that were turned away due to lack of VGM documentation.

As a reminder, the SOLAS VGM rule was passed in 2014 to eliminate misdeclared container weights and the dangers it imposes on carriers and port terminal staff. Since then, ports and carriers alike have worked towards applying the rule while maintaining efficiency. As of now, it seems that Europe and India have coped well with the official implementation today, while we have yet to see the response from ports in Africa, Americas, and Asia.

SOURCE: www.joc.com

 

Additional Information:

SOLAS VGM: Shipping’s Y2K Moment? (Splash 24/7)

Container Weighing Regulation Takes Effect (Heavy Lift)

MAJ Prepares for New VGM Weight Container Rule (Hellenic Shipping News)

As VGM Takes Effect, U.S. Terminals Offer Weights (The Maritime Exclusive)