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Ocean trade emerges from pandemic to face new realities

It is a familiar moment in container shipping markets, but deceptively so. The reappearance of overcapacity and GRIs brings us back to similar times. However, comparisons to the past have limitations due to new factors in the mix today. These factors include the ability of carriers to withdraw significant capacity and an energy transition that is beginning to assert itself. 

The current order book has capacity roughly equal to 30% of the existing container shipping fleet. This will translate into years of overcapacity and a buyer’s market. Therefore, carrier profits should decline until ordering slows and demand growth absorbs excess tonnage.

However, it is not the 2010s. Although the order book is the highest it’s been in years and demand remains subdued, the ground is shifting in new and unfamiliar ways.

Decarbonization is beginning to have a tangible effect. Therefore, vessel scrapping is expected to surge in response to stricter regulations. Additionally, replacement tonnage will be dominated by dual-fuel ships. 62% of the capacity ordered this year is capable of running on green methanol as well as conventional bunker fuel.

The possibility that accelerated scrapping might mitigate the impact of an oversized order book is not a salvation. Therefore, carriers are hoping for a second-half rebound in volumes. However, there are doubts that an uptick will lead to any significant change in capacity.

Capacity management through alliances is another relatively new phenomenon. Aggressive capacity management by the three major alliances enabled carriers to slow the freefall in rates seen over the second half of 2022.

In the end, increased scrapping and capacity discipline by carriers will be the key to navigating the market this year and in 2024.

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Trailer dislocation still hampering US truckload carriers

The pandemic has caused a systemic dislocation of trailers in the truckload market. Early on, this led to a drain on capacity available to shippers at the height of freight demand. This has changed to a drag on the ability of carriers to service loads in the current market. 

Trailer marketplace technology provider vHub estimates that up to 25% of dry van trailer capacity has been moved outside of its optimal location. That’s largely due to shippers slowing down or speeding up their shipment velocities, forcing carriers to move trailers farther outside preferred lanes.

The CRO of vHub said, “If I have a trailer stuck in New Jersey, I might have to bobtail it and incur the full cost of repositioning, taking a driver and tractor away from revenue-making lanes. Networks are so out of balance that fleet managers are going to extremes to rebalance.”

Accumulating displaced trailers for truckload carriers and shippers is no easy task. Carriers often have to reject loads in favor of collecting empty trailers to pull them back into their normal network.

One solution to the dilemma are so-called load-outs. For load-outs, carriers agree to pick up and reposition an empty trailer while simultaneously moving goods from another party. Load-outs have existed for a while. However, they are a last resort for carriers.

The industry sees anywhere from 15% to 25% in empty moves through a combination of authorized bobtail moves, planned and unplanned drop-and-hook empty moves, and a mysterious number of miles that are unaccounted for.

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About O’Neill Logistics

O’Neill Logistics is a leading third party logistics provider. We operate in California, Savannah, New Jersey. We service many verticals including Garments, Fashion Accessories, Footwear, Furniture, Home Goods, & Electronics. Additionally, we offer omni-channel distribution and all value-added services. Lastly, we focus on retail “drop shipment” fulfillment and item-level fulfillment services with same-day service offerings.

O’Neill Logistics has over 2 million square feet of state-of-the-art facilities. Additionally, we offer dray services to support the warehouses and provide distribution to retailers and wholesalers. Our reliable 3PL platform combines sophisticated technology with robust, flexible processing designs and speed-to-market gateway models.

Lastly, we aim to simplify your supply chain. We deliver exceptional service and can optimize your operational performance. Therefore, we aim to build, protect and foster strong business partnerships.

Please reach out to us if you have any questions or need assistance with your logistics solutions!