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Surge in U.S. Imports, Mexico-China Nexus, and the Red Sea Domino Effect

March 27, 2024

It is good news for the U.S. and Mexican supply chain operations as both nations continue to enjoy a surge in cargo import volumes. However,  something seems fishy in one of these countries. In this edition of our newsletter, we will review the rising import surge for both countries, Maersk supply service partnering with Edison Chouset to speed up offshore wind installations and the pricing power of carriers across the Red Sea, taking a blow.

Mixed Signals in U.S Import Trends

The latest U.S. import data shows a complex mix of positive and cautionary signs. February's import volumes, while down 6% month-over-month, reflect a healthy year-over-year growth (even when adjusted for the Lunar New Year). The slight decrease is unsurprising because freight operations are entering a slow season.

On the other hand, improved port efficiency is speeding up transit times, especially on the East Coast. However, a steeper-than-usual Lunar New Year drop in bookings suggests potential weakness in domestic freight demand for March and April, echoing a similar pattern that hurt carriers in the second quarter of 2023.

Trade tensions continue to influence import sources, with declining volumes from China offset somewhat by Mexico's growing role as a U.S. trading partner. Global uncertainties like the Panama drought, potential labor disruptions, and broader economic indicators like consumer spending and inflation will shape the coming months. Although the U.S. economy is showing resilience for quite some time, caution is advised. These factors will continue to reshape freight movements and test global supply chain stability.

What is Going on Between China and Mexico?

Container imports from China to Mexico skyrocketed by 60% year-over-year in January 2024, making it one of the fastest-growing trade lanes globally. This follows a 34.8% increase in 2023, compared to a modest 3.5% growth in 2022. The nation of Mexico is really positioning itself quite nicely. However, if you are wondering about the sudden spike, you are not alone.

Here are three possible theories:

1. Possible US Tariff Circumvention?

Analysts suspect this surge is linked to the US-China trade war. It could be a roundabout way for the Chinese to get their goods into the U.S. while avoiding the higher U.S. tariffs.

2. Potential Future Dominance?

It could just be that both countries have struck an interesting partnership, which is not yet clear to the rest of us. If this continues, though, Mexico could be on its way to enjoying future dominance. Xeneta's Chief Analyst predicts that by 2031, Mexico will surpass the US West Coast regarding container imports from China if this growth continues.

3. Shifting Landscape?

This new trend may highlight the dynamic nature of global trade, with "best options" for shippers likely to change as the market evolves.

It may not be all good news for Mexico, though  

While Mexico's West Coast ports offer an alternative, Xeneta warns of potential volatility in ocean freight shipping costs and service reliability as volumes increase. Rates to both Mexico and the US West Coast are converging, suggesting a maturing but potentially unstable market.

Mexican Ports Get Really Busy With Surge in Cargo Volumes

Mexico's ports saw a significant surge in container volume in January 2024, with a 20% increase compared to the same month in 2023. The country handled 728,116 twenty-foot equivalent units (TEUs) across its 18 ports. The Pacific Coast ports were the busiest and led the way in cargo traffic, handling over 73% of the total container traffic (532,534 TEUs). Manzanillo and Lazaro Cardenas, the two largest ports, reported record container movements for January.

Siddharth Priyesh, an industry expert, attributes the growth to nearshoring by foreign manufacturers, particularly in Tijuana. Companies are setting up factories near the US-Mexico border to import materials and truck finished products across the border. Mexico's Gulf Coast ports also saw an 18.8% increase in container traffic compared to January 2023. Veracruz and Altamira, the two main Gulf Coast ports, also experienced significant year-over-year growth.

What Does This Mean for US-bound Freight?

Priyesh highlights positive trends in containerized freight destined for the United States, with import volumes showing a 9% increase in December 2023. He links this to sustained consumer demand, especially in e-commerce, which requires a steady flow of imported goods.

Overall, the thriving Mexican import and export market seems fueled by nearshoring and strong consumer demand.

Maersk Supply Service and Eco Chouset Offshore Partner to Speed Up Offshore Wind Installations

The partnership revolves around a unique wind farm feeder system designed specifically for Maersk Supply Service's next-generation Wind Installation Vessel (WIV). The key benefit of this system is the WIV's continuous operation. The feeder spread will transport wind turbine components or foundations to the installation site, allowing the WIV to remain on location and focus on successive installations without breaks for component retrieval. This approach promises a significant reduction in overall installation time.

It's not all about speed, though. The partnership offers additional advantages. Maersk Supply Service highlights improved logistical access to more US ports by utilizing US-built tugs and barges. Furthermore, the locking mechanism between the WIV and barges is designed to make installations less susceptible to weather disruptions. You can expect this to lead to even faster project completion times.

Both companies are enthusiastic about the collaboration. Maersk Supply Service sees it as a natural progression that will accelerate the development of offshore wind farms in the US. ECO anticipates leveraging its existing experience and focus on technology to play a vital role in the continued growth of the US offshore wind market.

Red Sea Conflict Continues to Influence Carrier’s Pricing Power

Rerouting around Africa has extended transit times for shippers, risking logistics and supply chain disruptions. For example, the journey from China to Rotterdam has increased by 39% compared to last year, with scheduled times rising by 10% and delays adding 2.54 days.

Longer journeys require shipping companies to adjust capacity to maintain service levels. Shippers, particularly in Europe, are booking earlier to mitigate further delays. This combination of factors initially allowed carriers to raise spot rates and prioritize capacity for contracted shippers.

However, that initial surge and the Lunar New Year demand have subsided. Global ocean spot rates have lost momentum, with major indexes like the Drewry World Container Index and Freightos Baltic Daily Index experiencing declines. This suggests a slower-than-expected recovery in demand from China.

With the rate surge fading, the question remains: when will general rate increases (GRIs) be announced, and will they be sustainable? While rates are dropping globally, the decline varies by trade lane. Ocean carriers face the challenge of preventing a return to 2023 levels.

When There is Uncertainty in the Market, Shippers Opt for Visibility

Uncertain times in shipping operations are risky for supply chains and could lead to disruptions or, worse…supply chain downtimes. The solution to such uncertainty is keeping an eye on your container every step of the way. From source to destination, you will want to know about any development or exception, small or major.

The OpenTrack platform offers unparalleled visibility during freight operations. It is an application built by freight experts for forwarders and shippers. The following features ensure your convenience and transparency during the shipping process.

  • Visibility: Shippers can see every part of their supply chain, from the initial loading point to the destination and returns.
  • API Integration: Shippers may integrate OpenTrack's API with their own platforms to enhance their tracking software.
  • Automated Notification: This allows shippers to handle disruptions preemptively.

OpenTrack covers over 99% of global shipments, standardizing the most relevant and accurate data. This data is gathered from all major ocean carriers, ports, terminals, and steamship lines. It means you will receive data you can trust in real time, giving you full-scale ocean freight visibility. With OpenTrack, you cannot miss a thing. Book a demo here.

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