Epoxy
May 28, 2021
Port Update
California’s Massive Container-Ship Traffic Jam Is Still Really Jammed
by Tyler DurdenFriday, May 28, 2021 – 06:30 AM
By Greg Miller of FreightWaves,
Peak shipping season is coming soon — and the “parking lot” of container ships stuck at anchor off the coast of California is still there, with Oakland surpassing Los Angeles/Long Beach as the epicenter of congestion.
Shipping giant Maersk warned in a customer advisory on Wednesday that Los Angeles and Long Beach “remain strained with vessel wait times averaging between one to two weeks.” But it said “the situation is even more dire at the Port of Oakland, where wait times now extend up to three weeks.”
West Coast port delays are having severe fallout for liner schedules. Congestion in California equates to canceled voyages as ships can’t get back to Asia in time to load cargo. Even as U.S. import demand soars, the effective capacity in the trans-Pacific trade is being sharply curtailed by voyage cancellations.
For importers, that means even longer delays, even higher all-in freight rates and a cap on how much can be shipped at any price.
Maersk said that 20% of its capacity from Asia to the West Coast has been lost year to date as a result of operationally induced “blank” (canceled) sailings. It currently expects 16% of its Asia-West Coast capacity to be lost from now until the end of June and 13% to be lost from now until the end of August. “This unfortunately means Maersk may not be able to fully honor its original allocations for all customers,” the carrier admitted.
To put current cancellations in context, they are now running at the same percentage that carriers intentionally blanked in Q2 2020 to compensate for the sudden collapse of import demand when U.S. businesses were shuttered by nationwide lockdowns.
Deadline will be missed
Port of Los Angeles Executive Director Gene Seroka has repeatedly said that the San Pedro Bay anchorages need to be cleared before the traditional peak season surge begins. He has voiced a goal of June 1 for “few if any ships” at anchor.Port of LA’s Gene Seroka
That deadline, which is a week away, will not be met.
The daily number of ships stuck in San Pedro Bay is down from an average of 31.8 in January to mid-March to 21.3 from mid-March to Tuesday. However, the numbers have stubbornly refused to fall further. As of Tuesday, there were still 20 ships at anchor in San Pedro Bay.
Asked about his June 1 target for clear anchorages, Seroka told American Shipper, “Import volume continues to be heavy and consistent, more than we had anticipated earlier this year. Reduction in dwell times is leveling off and the subsequent decline in [ships at] anchorage has slowed. Our goal remains to clear as much of the at-anchorage situation as possible prior to late summer and the start of the traditional peak season.”
Unfortunately, the peak season is expected to begin sooner than usual this year. Time appears to be about to run out — which implies even more congestion.
According to Maersk, “Peak season is expected to start early this year as retailers prepare for a strong back-to-school season that will likely blend into the end-of-year holiday peak season that typically starts in August. This will unfortunately put more pressure on an already stretched network with the potential to cause further disruptions.”
Congestion woes in Oakland
As of Wednesday, there were around 10 container ships anchored in San Francisco Bay, off Oakland, according to Automatic Identification System (AIS) ship-positioning data from MarineTraffic. But that’s less than half the story. Off the coast, there were an additional 15 or more container ships drifting in the Pacific.Inner anchorage (left); ships drifting off coast (right). Maps by MarineTraffic; ship positions as of early Wednesday
The number of waiting ships has a different meaning for Oakland than for Los Angeles/Long Beach, as Oakland is a much smaller port. Oakland’s January-April import throughput was about one-tenth of the combined Los Angeles/Long Beach throughput.
Oakland has two berths temporarily out of commission. The ONE-operated NYK Delphinus suffered an engine room fire on May 14 and berthed in Oakland on May 18. AIS data showed the ship still at the berth on Wednesday. In addition, a berth at Oakland International Container Terminal has been unavailable for an extended period due to crane installations. That berth should come back online by the end of this month.
The bigger problem in Oakland, according to carriers Maersk and Hapag-Lloyd, is a shortage of available longshore labor. Maersk said in a client note last week, “Terminals are limited to two gangs per vessel on most ships due to the unavailability of the needed labor to cover the current demand.”
Hapag-Lloyd informed customers on Tuesday, “Massive import volumes combined with labor shortages are the biggest drivers of continued congestion and vessel operations delays [in Oakland].”
Asked about the labor shortfall, Andrew Hwang, the Port of Oakland’s manager of business development and international marketing, responded, “There is good news to report. It’s our understanding that the ILWU [longshore union] is preparing 300 new casuals to be added and another 150 ILWU members are being trained so that they can work skilled positions … needed to move cargo more efficiently. The new dockworkers and skilled labor are expected to be ready and able to join their colleagues this summer.”
Rough start for ZIM ‘fast’ service
One example of how Oakland congestion is affecting carriers and shippers involves ZIM. The Israeli carrier just introduced a new Asia-West Coast service called the Central China E-Commerce Express ZX3 that is designed to provide fast trans-Pacific service for time-sensitive cargo. It is scheduled to call in Oakland first, then Los Angeles.
It is not going as planned. The first ship, the 4,254-twenty-foot equivalent unit (TEU) Volans, was unable to get into Oakland on its inaugural call due to congestion and diverted to Los Angeles instead. A source told American Shipper that the vessel was quickly serviced in Los Angeles, with urgent cargo unloaded. On Wednesday, AIS data showed the Volans drifting with all the other ships off Oakland.
The new service is already so far behind schedule that the next ship in the string, the 4,250-TEU Navios Chrysalis, is due to arrive in Oakland just three days from now.
LA/LB congestion by the numbers
While the congestion is more extreme in Oakland, the anchorage situation off Los Angeles/Long Beach is more important from an overall import volume perspective.
American Shipper was provided the daily counts of container ships at anchor and at berth by the Marine Exchange of Southern California. The year-to-date numbers show the step-down in severity starting in mid-March and the persistence of the anchorage numbers since then.Chart by American Shipper based on data from Marine Exchange of Southern California
Looking further back, to the pre-COVID era, shows the extent of the current import surge. In January-May 2019, Los Angeles/Long Beach averaged 14.9 container ships per day, including those at berth and at anchor. Year to date in 2021, the average is 53.9 ships per day, 3.6 times pre-COVID levels.Chart by American Shipper based on data from Marine Exchange of Southern California; data from Dec. 2020 is daily, prior data is bimonthly
Looking even further back, the current congestion crisis can be compared to the last major disruption: the West Coast labor unrest that crippled port operations in January-April 2015.
American Shipper mapped the curves of ships at anchor during the 2015 incident against the current curve. Six years ago, the disruptions peaked three months after they began and came down quickly. The current crisis is already almost three times as long as the prior one, and the number of ships at anchor is still close to highs set back in 2015.Chart by American Shipper based on data from Marine Exchange of Southern California
Realistically, decreased import demand is the most important (if not only) factor that would allow the West Coast port system to dig itself out of its hole and thus allow carriers to add back canceled sailings.
But the data shows that import demand is still increasing.
FreightWaves’ SONAR platform features a proprietary index of shippers’ ocean bookings (SONAR: IOTI.USA) measured in twenty-foot equivalent units (10-day moving average) as of the scheduled date of overseas departure and indexed to January 2019.
While these are bookings, not loadings, the index provides a directional indicator of U.S. import volumes in the future, when ships from various export destinations arrive at American ports. The index has been considerably higher in May than in April, implying that volumes hitting U.S. shores next month will be even greater than current levels.
https://www.zerohedge.com/markets/californias-massive-container-ship-traffic-jam-still-really-jammed
May 28, 2021
Port Update
California’s Massive Container-Ship Traffic Jam Is Still Really Jammed
by Tyler DurdenFriday, May 28, 2021 – 06:30 AM
By Greg Miller of FreightWaves,
Peak shipping season is coming soon — and the “parking lot” of container ships stuck at anchor off the coast of California is still there, with Oakland surpassing Los Angeles/Long Beach as the epicenter of congestion.
Shipping giant Maersk warned in a customer advisory on Wednesday that Los Angeles and Long Beach “remain strained with vessel wait times averaging between one to two weeks.” But it said “the situation is even more dire at the Port of Oakland, where wait times now extend up to three weeks.”
West Coast port delays are having severe fallout for liner schedules. Congestion in California equates to canceled voyages as ships can’t get back to Asia in time to load cargo. Even as U.S. import demand soars, the effective capacity in the trans-Pacific trade is being sharply curtailed by voyage cancellations.
For importers, that means even longer delays, even higher all-in freight rates and a cap on how much can be shipped at any price.
Maersk said that 20% of its capacity from Asia to the West Coast has been lost year to date as a result of operationally induced “blank” (canceled) sailings. It currently expects 16% of its Asia-West Coast capacity to be lost from now until the end of June and 13% to be lost from now until the end of August. “This unfortunately means Maersk may not be able to fully honor its original allocations for all customers,” the carrier admitted.
To put current cancellations in context, they are now running at the same percentage that carriers intentionally blanked in Q2 2020 to compensate for the sudden collapse of import demand when U.S. businesses were shuttered by nationwide lockdowns.
Deadline will be missed
Port of Los Angeles Executive Director Gene Seroka has repeatedly said that the San Pedro Bay anchorages need to be cleared before the traditional peak season surge begins. He has voiced a goal of June 1 for “few if any ships” at anchor.Port of LA’s Gene Seroka
That deadline, which is a week away, will not be met.
The daily number of ships stuck in San Pedro Bay is down from an average of 31.8 in January to mid-March to 21.3 from mid-March to Tuesday. However, the numbers have stubbornly refused to fall further. As of Tuesday, there were still 20 ships at anchor in San Pedro Bay.
Asked about his June 1 target for clear anchorages, Seroka told American Shipper, “Import volume continues to be heavy and consistent, more than we had anticipated earlier this year. Reduction in dwell times is leveling off and the subsequent decline in [ships at] anchorage has slowed. Our goal remains to clear as much of the at-anchorage situation as possible prior to late summer and the start of the traditional peak season.”
Unfortunately, the peak season is expected to begin sooner than usual this year. Time appears to be about to run out — which implies even more congestion.
According to Maersk, “Peak season is expected to start early this year as retailers prepare for a strong back-to-school season that will likely blend into the end-of-year holiday peak season that typically starts in August. This will unfortunately put more pressure on an already stretched network with the potential to cause further disruptions.”
Congestion woes in Oakland
As of Wednesday, there were around 10 container ships anchored in San Francisco Bay, off Oakland, according to Automatic Identification System (AIS) ship-positioning data from MarineTraffic. But that’s less than half the story. Off the coast, there were an additional 15 or more container ships drifting in the Pacific.Inner anchorage (left); ships drifting off coast (right). Maps by MarineTraffic; ship positions as of early Wednesday
The number of waiting ships has a different meaning for Oakland than for Los Angeles/Long Beach, as Oakland is a much smaller port. Oakland’s January-April import throughput was about one-tenth of the combined Los Angeles/Long Beach throughput.
Oakland has two berths temporarily out of commission. The ONE-operated NYK Delphinus suffered an engine room fire on May 14 and berthed in Oakland on May 18. AIS data showed the ship still at the berth on Wednesday. In addition, a berth at Oakland International Container Terminal has been unavailable for an extended period due to crane installations. That berth should come back online by the end of this month.
The bigger problem in Oakland, according to carriers Maersk and Hapag-Lloyd, is a shortage of available longshore labor. Maersk said in a client note last week, “Terminals are limited to two gangs per vessel on most ships due to the unavailability of the needed labor to cover the current demand.”
Hapag-Lloyd informed customers on Tuesday, “Massive import volumes combined with labor shortages are the biggest drivers of continued congestion and vessel operations delays [in Oakland].”
Asked about the labor shortfall, Andrew Hwang, the Port of Oakland’s manager of business development and international marketing, responded, “There is good news to report. It’s our understanding that the ILWU [longshore union] is preparing 300 new casuals to be added and another 150 ILWU members are being trained so that they can work skilled positions … needed to move cargo more efficiently. The new dockworkers and skilled labor are expected to be ready and able to join their colleagues this summer.”
Rough start for ZIM ‘fast’ service
One example of how Oakland congestion is affecting carriers and shippers involves ZIM. The Israeli carrier just introduced a new Asia-West Coast service called the Central China E-Commerce Express ZX3 that is designed to provide fast trans-Pacific service for time-sensitive cargo. It is scheduled to call in Oakland first, then Los Angeles.
It is not going as planned. The first ship, the 4,254-twenty-foot equivalent unit (TEU) Volans, was unable to get into Oakland on its inaugural call due to congestion and diverted to Los Angeles instead. A source told American Shipper that the vessel was quickly serviced in Los Angeles, with urgent cargo unloaded. On Wednesday, AIS data showed the Volans drifting with all the other ships off Oakland.
The new service is already so far behind schedule that the next ship in the string, the 4,250-TEU Navios Chrysalis, is due to arrive in Oakland just three days from now.
LA/LB congestion by the numbers
While the congestion is more extreme in Oakland, the anchorage situation off Los Angeles/Long Beach is more important from an overall import volume perspective.
American Shipper was provided the daily counts of container ships at anchor and at berth by the Marine Exchange of Southern California. The year-to-date numbers show the step-down in severity starting in mid-March and the persistence of the anchorage numbers since then.Chart by American Shipper based on data from Marine Exchange of Southern California
Looking further back, to the pre-COVID era, shows the extent of the current import surge. In January-May 2019, Los Angeles/Long Beach averaged 14.9 container ships per day, including those at berth and at anchor. Year to date in 2021, the average is 53.9 ships per day, 3.6 times pre-COVID levels.Chart by American Shipper based on data from Marine Exchange of Southern California; data from Dec. 2020 is daily, prior data is bimonthly
Looking even further back, the current congestion crisis can be compared to the last major disruption: the West Coast labor unrest that crippled port operations in January-April 2015.
American Shipper mapped the curves of ships at anchor during the 2015 incident against the current curve. Six years ago, the disruptions peaked three months after they began and came down quickly. The current crisis is already almost three times as long as the prior one, and the number of ships at anchor is still close to highs set back in 2015.Chart by American Shipper based on data from Marine Exchange of Southern California
Realistically, decreased import demand is the most important (if not only) factor that would allow the West Coast port system to dig itself out of its hole and thus allow carriers to add back canceled sailings.
But the data shows that import demand is still increasing.
FreightWaves’ SONAR platform features a proprietary index of shippers’ ocean bookings (SONAR: IOTI.USA) measured in twenty-foot equivalent units (10-day moving average) as of the scheduled date of overseas departure and indexed to January 2019.
While these are bookings, not loadings, the index provides a directional indicator of U.S. import volumes in the future, when ships from various export destinations arrive at American ports. The index has been considerably higher in May than in April, implying that volumes hitting U.S. shores next month will be even greater than current levels.
https://www.zerohedge.com/markets/californias-massive-container-ship-traffic-jam-still-really-jammed
May 24, 2021
Great Advice
Read Mitch Daniels’ Charge To Graduates: ‘The Biggest Risk Of All Is That We Stop Taking Risks’
Purdue University President Mitch Daniels warned that the pandemic snuffed out the American eagerness to take risks and move ahead boldly.
By May 18, 2021
Purdue University President Mitch Daniels made these remarks during the spring commencement May 15, 2021, on the West Lafayette campus.
This year, when I say I am happy to be here, I’m not just making small talk. If you’re like me, you’re happy to be anywhere after the year we’ve all been through. I wish we were over in Elliott Hall, celebrating your achievements individually as only Purdue does among schools our size. But this beats the virtual version we were forced to in 2020 and marks a long step back on the path to fully normal life.
As we’ve never done an outdoor commencement before, we may have gotten a few things wrong. For one thing, way out here on the 50-yard line, it feels like we’ve carried that social distance thing a little far. However well it goes, like everything about your senior year, it will be one for the history books. For all the trouble and downsides, there can be some real value in living through a time like that.
For decades to come, scholars and ordinary citizens alike will look back on your senior year, trying to identify its consequences, and imagine what lives so disrupted were like. As they do so, they will know more than we can now about the results of the choices today’s leaders made. They will reach judgments, with the benefit of hindsight, about the wisdom and maturity with which our nation handled the challenge of this particular pandemic.
Odds are, not all those judgments will be favorable. Time will tell.
An ability to comprehend and work with complex facts and data has always been part of a Purdue education. At least since the Industrial Age, that’s been an essential tool for a useful life of the kind at which Boilermakers excel.
But that’s never been nearly so true as today. Massive amounts of information are being collected, intentionally by us and silently by the machines we invent and use in daily life. Interpreting its meaning, and discovering patterns within it, is perhaps the most important skill in the economy of 2021. Our faculty has determined that data analysis, as we now call it, should be as universal a part of a Boilermaker education as English composition.
You’ll leave this stadium able to evaluate statistics and whether they are significant or meaningless. You’ll know better than to confuse correlation with causation. You’ll look at decisions critically, and holistically, understanding that any objective pursued too far eventually yields diminishing returns not worth their cost. That, just as medicines have side effects, almost all actions produce collateral consequences, often collateral damage.
It doesn’t stretch a point to say that we wouldn’t be meeting here today without those skills. Keeping Purdue open last fall, so that you could stay on schedule and graduate today, required the daily examination of COVID-19 infection rates and patterns of its spread on and around campus. Prior to that, the decision to reopen at all involved a reading of the available data, which showed that people your age were at far less risk from the virus than from a host of other dangers.
Starting soon, the decisions will be yours to make. In businesses you start or join, in causes in which you feel called to enlist, or in that most important of all organizations, the families I hope you will form. Wherever they are, the very essence of your coming leadership roles will lie in making hard choices. After weighing all the options, the competing priorities and the uncertainties that even the biggest databases cannot totally eliminate, others will look to you to choose.
The risk of failure, of a hit to one’s reputation, or just that the gains don’t outweigh the costs, all these can deter or even paralyze a person out of fulfilling the responsibility someone has entrusted to them. Should I make this investment, or husband my cash? Take that job offer, or stay where I’m comfortable? Engage in this debate, or sit silently? Choose this life partner, or play it safe?
This last year, many of your elders failed this fundamental test of leadership. They let their understandable human fear of uncertainty overcome their duty to balance all the interests for which they were responsible. They hid behind the advice of experts in one field but ignored the warnings of experts in other realms that they might do harm beyond the good they hoped to accomplish.
Sometimes they let what might be termed the mad pursuit of zero, in this case zero risk of anyone contracting the virus, block out other competing concerns, like the protection of mental health, the educational needs of small children, or the survival of small businesses. Pursuing one goal to the utter exclusion of all others is not to make a choice but to run from it. It’s not leadership; it’s abdication. I feel confident your Purdue preparation won’t let you fall prey to it.
But there’s a companion quality you’ll need to be the leaders you can be. That’s the willingness to take risks. Not reckless ones, but the risks that still remain after all the evidence has been considered.
Great societies before us tended to look backward for their inspiration, to locate their golden ages in the past. Here our eyes have always been forward. Now signs abound of Americans losing that eagerness to move ahead boldly.
Before the virus visited us, there were already troubling signs that fearfulness was beginning to erode the spirit of adventure, the willingness to take considered risks, on which this nation’s greatness was built and from which all progress originates. Rates of business startups, moving in pursuit of a better job, or the strongest of all bets on the future, having children, all have fallen sharply in recent years. And now there are warnings that the year 2020 may have weakened that spirit further.
As early as April of last year, researchers at the Federal Reserve of St. Louis documented the “belief-scarring effects” of COVID-19. Psychologists proved a long time ago that we humans tend to overestimate how common terrible events are. Because they are terrible, we are more sure to hear about them, and we trick ourselves into believing that they are far more likely than they really are.
Now we learn that such misconceptions can be long-lasting. The scarring effect is, the Fed’s economists tell us, “a persistent change in beliefs about the probability of an extreme, negative shock producing … long-lived responses to transitory events, especially extreme, unlikely ones.”
Fortunately, Boilermakers don’t scar easily. If Amelia Earhart had been intimidated by uncertainty, we wouldn’t know her name. If our recent board chair Keith Krach had stayed within the safe confines of a giant corporation’s career ladder, the world would not enjoy the huge efficiency breakthroughs of Ariba and Docusign. If Neil Armstrong, Gus Grissom and more than a score more Purdue astronauts had run from risk, humanity’s knowledge of its universe would be far short of its current boundaries.
In the most jarring book of recent years, the Israeli philosopher Yuval Harari predicts that humans your age will live to see the “last days of death,” when the species we call Homo sapiens becomes “godlings” and immortal. He sees this happening through one of the same technologies at which this university excels: either biological engineering, or cyborg engineering, of our organic beings, or simply the complete replacement of humans by super intelligent machines.
Immortality sounds good, until Harari points out the implications. One of them would be a total aversion to risk. As the author explains it, if you believe you can live forever, why would you ever take a chance of any kind?
I hope that the experiences of 2020 left you with an attitude not of fearfulness but of confidence. Confidence that we can tackle hard problems, and that hiding from them is rarely the best course. That given a careful examination of the available facts and a thoughtful calculation of relative risks, we can overcome even the biggest obstacles and be the masters of our fates and our futures.
As school started again at her campus, the provost of the University of Kansas sent a message to her students and colleagues that is relevant far beyond the present day or the recent pandemic. “In times of high anxiety,” she wrote, “it is human nature to crave certainty for the safety it provides. The problem with craving certainty is that it is a false hope; it is a craving that can never fully be met.”
She quoted the astronomer Carl Sagan: “The history of science teaches us that the most we can hope for is successive improvement in our understanding, learning from our mistakes … with the proviso that absolute certainty will always elude us.”
Maybe the great historian Jacques Barzun summed it up best: “The last degree of caution is cowardice.”
Certainty is an illusion. Perfect safety is a mirage. Zero is always unattainable, except in the case of absolute zero where, as you remember, all motion and life itself stop.
You are leaving here ready for leadership. Your academic records say so. The history of Purdue graduates says so. The character you demonstrated this last year, when your embrace of the Purdue Pledge enabled this place to stay open at all, clearly says so.
We expect, no, we know, that you will tackle leadership’s challenges as they present themselves to you. You’re taking with you the tools to weigh alternatives, balance priorities, assess relative risks. All you’ll need is the courage to act on the conclusions you reach.
Now take that readiness into a fearful, timid world crying for direction and boldness, where the biggest risk of all is that we stop taking risks at all. Hail Purdue, and each of you.
May 24, 2021
Great Advice
Read Mitch Daniels’ Charge To Graduates: ‘The Biggest Risk Of All Is That We Stop Taking Risks’
Purdue University President Mitch Daniels warned that the pandemic snuffed out the American eagerness to take risks and move ahead boldly.
By May 18, 2021
Purdue University President Mitch Daniels made these remarks during the spring commencement May 15, 2021, on the West Lafayette campus.
This year, when I say I am happy to be here, I’m not just making small talk. If you’re like me, you’re happy to be anywhere after the year we’ve all been through. I wish we were over in Elliott Hall, celebrating your achievements individually as only Purdue does among schools our size. But this beats the virtual version we were forced to in 2020 and marks a long step back on the path to fully normal life.
As we’ve never done an outdoor commencement before, we may have gotten a few things wrong. For one thing, way out here on the 50-yard line, it feels like we’ve carried that social distance thing a little far. However well it goes, like everything about your senior year, it will be one for the history books. For all the trouble and downsides, there can be some real value in living through a time like that.
For decades to come, scholars and ordinary citizens alike will look back on your senior year, trying to identify its consequences, and imagine what lives so disrupted were like. As they do so, they will know more than we can now about the results of the choices today’s leaders made. They will reach judgments, with the benefit of hindsight, about the wisdom and maturity with which our nation handled the challenge of this particular pandemic.
Odds are, not all those judgments will be favorable. Time will tell.
An ability to comprehend and work with complex facts and data has always been part of a Purdue education. At least since the Industrial Age, that’s been an essential tool for a useful life of the kind at which Boilermakers excel.
But that’s never been nearly so true as today. Massive amounts of information are being collected, intentionally by us and silently by the machines we invent and use in daily life. Interpreting its meaning, and discovering patterns within it, is perhaps the most important skill in the economy of 2021. Our faculty has determined that data analysis, as we now call it, should be as universal a part of a Boilermaker education as English composition.
You’ll leave this stadium able to evaluate statistics and whether they are significant or meaningless. You’ll know better than to confuse correlation with causation. You’ll look at decisions critically, and holistically, understanding that any objective pursued too far eventually yields diminishing returns not worth their cost. That, just as medicines have side effects, almost all actions produce collateral consequences, often collateral damage.
It doesn’t stretch a point to say that we wouldn’t be meeting here today without those skills. Keeping Purdue open last fall, so that you could stay on schedule and graduate today, required the daily examination of COVID-19 infection rates and patterns of its spread on and around campus. Prior to that, the decision to reopen at all involved a reading of the available data, which showed that people your age were at far less risk from the virus than from a host of other dangers.
Starting soon, the decisions will be yours to make. In businesses you start or join, in causes in which you feel called to enlist, or in that most important of all organizations, the families I hope you will form. Wherever they are, the very essence of your coming leadership roles will lie in making hard choices. After weighing all the options, the competing priorities and the uncertainties that even the biggest databases cannot totally eliminate, others will look to you to choose.
The risk of failure, of a hit to one’s reputation, or just that the gains don’t outweigh the costs, all these can deter or even paralyze a person out of fulfilling the responsibility someone has entrusted to them. Should I make this investment, or husband my cash? Take that job offer, or stay where I’m comfortable? Engage in this debate, or sit silently? Choose this life partner, or play it safe?
This last year, many of your elders failed this fundamental test of leadership. They let their understandable human fear of uncertainty overcome their duty to balance all the interests for which they were responsible. They hid behind the advice of experts in one field but ignored the warnings of experts in other realms that they might do harm beyond the good they hoped to accomplish.
Sometimes they let what might be termed the mad pursuit of zero, in this case zero risk of anyone contracting the virus, block out other competing concerns, like the protection of mental health, the educational needs of small children, or the survival of small businesses. Pursuing one goal to the utter exclusion of all others is not to make a choice but to run from it. It’s not leadership; it’s abdication. I feel confident your Purdue preparation won’t let you fall prey to it.
But there’s a companion quality you’ll need to be the leaders you can be. That’s the willingness to take risks. Not reckless ones, but the risks that still remain after all the evidence has been considered.
Great societies before us tended to look backward for their inspiration, to locate their golden ages in the past. Here our eyes have always been forward. Now signs abound of Americans losing that eagerness to move ahead boldly.
Before the virus visited us, there were already troubling signs that fearfulness was beginning to erode the spirit of adventure, the willingness to take considered risks, on which this nation’s greatness was built and from which all progress originates. Rates of business startups, moving in pursuit of a better job, or the strongest of all bets on the future, having children, all have fallen sharply in recent years. And now there are warnings that the year 2020 may have weakened that spirit further.
As early as April of last year, researchers at the Federal Reserve of St. Louis documented the “belief-scarring effects” of COVID-19. Psychologists proved a long time ago that we humans tend to overestimate how common terrible events are. Because they are terrible, we are more sure to hear about them, and we trick ourselves into believing that they are far more likely than they really are.
Now we learn that such misconceptions can be long-lasting. The scarring effect is, the Fed’s economists tell us, “a persistent change in beliefs about the probability of an extreme, negative shock producing … long-lived responses to transitory events, especially extreme, unlikely ones.”
Fortunately, Boilermakers don’t scar easily. If Amelia Earhart had been intimidated by uncertainty, we wouldn’t know her name. If our recent board chair Keith Krach had stayed within the safe confines of a giant corporation’s career ladder, the world would not enjoy the huge efficiency breakthroughs of Ariba and Docusign. If Neil Armstrong, Gus Grissom and more than a score more Purdue astronauts had run from risk, humanity’s knowledge of its universe would be far short of its current boundaries.
In the most jarring book of recent years, the Israeli philosopher Yuval Harari predicts that humans your age will live to see the “last days of death,” when the species we call Homo sapiens becomes “godlings” and immortal. He sees this happening through one of the same technologies at which this university excels: either biological engineering, or cyborg engineering, of our organic beings, or simply the complete replacement of humans by super intelligent machines.
Immortality sounds good, until Harari points out the implications. One of them would be a total aversion to risk. As the author explains it, if you believe you can live forever, why would you ever take a chance of any kind?
I hope that the experiences of 2020 left you with an attitude not of fearfulness but of confidence. Confidence that we can tackle hard problems, and that hiding from them is rarely the best course. That given a careful examination of the available facts and a thoughtful calculation of relative risks, we can overcome even the biggest obstacles and be the masters of our fates and our futures.
As school started again at her campus, the provost of the University of Kansas sent a message to her students and colleagues that is relevant far beyond the present day or the recent pandemic. “In times of high anxiety,” she wrote, “it is human nature to crave certainty for the safety it provides. The problem with craving certainty is that it is a false hope; it is a craving that can never fully be met.”
She quoted the astronomer Carl Sagan: “The history of science teaches us that the most we can hope for is successive improvement in our understanding, learning from our mistakes … with the proviso that absolute certainty will always elude us.”
Maybe the great historian Jacques Barzun summed it up best: “The last degree of caution is cowardice.”
Certainty is an illusion. Perfect safety is a mirage. Zero is always unattainable, except in the case of absolute zero where, as you remember, all motion and life itself stop.
You are leaving here ready for leadership. Your academic records say so. The history of Purdue graduates says so. The character you demonstrated this last year, when your embrace of the Purdue Pledge enabled this place to stay open at all, clearly says so.
We expect, no, we know, that you will tackle leadership’s challenges as they present themselves to you. You’re taking with you the tools to weigh alternatives, balance priorities, assess relative risks. All you’ll need is the courage to act on the conclusions you reach.
Now take that readiness into a fearful, timid world crying for direction and boldness, where the biggest risk of all is that we stop taking risks at all. Hail Purdue, and each of you.
May 20, 2021
Container Rates
Why Stratospheric Container Rates Could Rocket Even Higher
by Tyler DurdenThursday, May 20, 2021 – 11:35 AM
By Greg Miller of Freight Waves,
Spot ocean container rates are up triple digits year on year, ergo they must be near their peak. They’re so high they don’t have much more room to run. So goes a common belief in the container market, despite the fact that this premise has already been proven wrong, and that container rates could theoretically have a lot more room to run if the upper limit is defined the same way it is in non-containerized shipping.
One leading freight-forwarder executive told American Shipper in August 2020 after the initial spike, “I do not think there is room for growth beyond $4,000 [per forty-foot equivalent unit or FEU].” Nine months later, many all-in trans-Pacific rates including premium charges are more than double that — and rising sustainably. Importers commonly pay $8,000-$10,000 per FEU or more, including extra charges, sometimes a lot more.Spot rates do not include $3,000-$5,000 per FEU premiums now reportedly being paid by some shippers. FBXD.CNAE = China-East Coast
But why stop there?
Retail inventories-to-sales ratios are still at historic lows, stimulus checks are still supporting spending, and the traditional peak season is right around the corner. Meanwhile, U.S. households accumulated an enormous amount of excess savings during the pandemic (equivalent to 12% of GDP, according to Moody’s) that may now be unleashed.
What if the high-end case for U.S. import demand plays out over the rest of this year and exceeds vessel and equipment supply even more so than it does today?
A common response from shippers in online forums is that regulators will intervene if rates go too high. That’s not going to happen, at least in the U.S. During a presentation last week, Federal Maritime Commission (FMC) Chairman Daniel Maffei made clear that if high freight prices are being caused by market forces, there’s nothing the FMC can currently do about it.
How bulk shipping rates are capped
The current rate spike is unprecedented in the history of container shipping. The sector is in completely unchart(er)ed territory (one reason why rate predictions over the past nine months have been repeatedly wrong). However, there is an extensive history of precedents in non-containerized shipping — in crude tanker, gas carrier and dry bulk markets — that shed light on how high the maximum spot rate can go.
The freight rate of a spot cargo in bulk commodity shipping is elastic all the way up to the point where it erases the profit margin of the shipper. Rates for very large crude carriers (VLCCs, tankers that carry 2 million barrels of oil) topped $200,000 per day in October 2019 and March-April 2020. A liquefied natural gas carrier was booked at $350,000 per day in January.
An example of the upper limit being hit was recounted by Trygve Munthe, co-CEO of crude-tanker owner DHT. Referring to the rate peak in the second week of October 2019, he said, “When you get to that kind of freight level, you make it very hard for the refiners to make money. In that crazy week, we happened to be in Korea meeting with a lot of refiners, and they told us that at those freight levels, it just didn’t make sense for them. They said they would just pull back on their [refining] throughputs.”
Stifel analyst Ben Nolan explained the max-rate calculation for Capesizes (dry bulk ships with a capacity of around 180,000 deadweight tons) in a research note titled “How High Can You Go?” published last week.
“Turns out, at current commodity prices … the dry bulk market is nowhere close to its theoretical ceiling,” he wrote. “If demand exceeds supply, the primary upward constraint of ship freight cost is the point at which it absorbs the profit of the producer or shipper.”
He noted that the landed price of thermal coal in China last week was about $125 per ton and the producer breakeven was $60 per ton, meaning the transport costs could be as much as $65 per ton. Capesize rates were then around $13 per ton (the equivalent of $40,000 per day), meaning “freight rates would need to rise seven times or to around $300,000 per day before the economics are completely destroyed by freight costs.”
Applying bulk shipping rate cap to containers
In an interview on Friday, American Shipper asked Jefferies shipping analyst Randy Giveans how this max-spot-rate concept applies to container shipping.
The big difference with bulk commodity shipping is transparency on the cargo price and margins. “With tankers, you know the commodity you’re moving. You know the exact price of Brent. With floating storage economics, you can say the prompt month price is x, the price six or 12 months later is y, here’s the carry trade, so here’s what you can charge for a VLCC to operate in floating storage.
“It’s similar with dry bulk, although you’re not doing floating storage. You can still say: The delivered cost of iron ore in China is $150-$200 per ton, it costs maybe $30 or $40 per ton [to produce] in Brazil and $50 in Australia and Capesize [transport] rates are maybe $30 per ton from Brazil and $10-$12 from Australia, so there are still huge margins and rates from Brazil for iron-ore [shipping] could go up three times.”
Container shipping is much more opaque. “This is a lot harder [to calculate] for containerized goods because you don’t know exactly what’s in those boxes,” he said. “Is it large stuffed animals or is it iPhones and iPads with much higher value and lower weight?”
The key is how the total containerized transport cost, including ocean and land, relates to the margin of the goods. “Let’s say a pair of shoes costs $10 to produce and sells for $100-$200. You can fit a lot of shoes in a container. If the transport cost is $5-$10 per pair and then it rises to $20, who cares? There’s still a huge margin there,” he said.
On the other hand, there have been reported cases of certain imported goods already getting priced out by rising ocean spot rates. “There are goods with lower margins and we’ve heard of some retailers saying it’s too expensive for me to take the cargo,” acknowledged Giveans. “But I think there are a lot fewer items like that than there are items with margins [that can still handle even higher transport costs].”
The spot-rate equation also changes as importers pass along transport costs to consumers. “The cost of everything is going up. You’re seeing inflation of the cost of goods. Even the price of low-margin materials is going higher and part of that is the increased shipping cost is being passed along to the customers,” said Giveans.
To apply the bulk commodity shipping equation to container shipping: If you subtract all the volume covered by fixed-price contracts, the spot rate on the remaining trans-Pacific volume could theoretically increase to the extent that there is enough demand to fill that remaining volume with goods from shippers who will accept even higher rates, whether because their margin is high enough to absorb it or because of their ability to pass along costs to consumers. If some low-margin imports are priced out, higher-margin goods could supplant them and keep rates rising.
Differences between bulk and container shipping
In tanker and bulker shipping, the cycles over the decades have been characterized by long periods of below-breakeven rates or small profits, accentuated by repeated brief periods of extremely high rates.
Shippers offer spot bulk cargoes to the vessels in the vicinity and generally take the lowest freight bid. During rate spikes, if the lowest bid is extremely high, shippers pay it if they can still make a margin on the trade and refuse it if they can’t. They don’t begrudge the vessel interest for offering a high spot rate; they blame the temporary supply-demand imbalance.
In container shipping, the past decades have been overwhelmingly dominated by heavy losses for carriers, several of which would no longer exist if not for government rescues. Containerized cargo shippers do not have the same institutional memory of extreme rate spikes as bulk cargo shippers.
Containerized cargo shippers also have more contract versus spot business with carriers than in the crude and dry bulk trades, and thus, there is more risk of relationship damage with carriers during periods of extreme spot-rate highs. Unlike shippers in bulk commodity trades, container shippers are blaming carriers for taking advantage of the supply-demand imbalance, even though shippers benefited from the imbalance in the opposite direction for decades.
That relationship factor might, perhaps, keep liners from being as aggressive on pricing as they might otherwise be. “I could understand how a liner maybe doesn’t want to really put the screws on its customers,” Giveans said.
Can US regulators intervene?
Another difference between bulk commodity shipping and container shipping is that container shipping, unlike bulk shipping, is regulated, at least to some extent.
However, in the U.S., the FMC cannot intervene on high pricing unless it is deemed “unreasonable” from a market perspective or as the direct result of lack of competition via alliances. Maffei of the FMC addressed the current market crunch during a Port of Los Angeles presentation on Thursday.
“The fact is that we have an incredibly vibrant global freight system, and right now that system is at and beyond capacity,” he said.
“We have a pretty limited set of tools. … We can investigate the alliances and if necessary, challenge them in court if we feel they are creating unreasonably high costs because of the alliances. We have looked at that pretty extensively and will continue to do so. But so far, there’s just no evidence that the alliances themselves are engaging in any behavior that would allow us to take them to court.
“High price in and of itself is not a violation of the Shipping Act,” he continued. “We don’t set rates and we can’t dictate the levels of service. What we can do is continue to monitor carriers to make sure alliances, by their very existence, don’t mean that there will be an unreasonably diminished level of service or unreasonably increased cost.
“But the key is that when you’re at or beyond the capacity of the system, it’s very difficult to prove that if only this [carrier consolidation] didn’t exist, prices would be lower. Because the fact is that it’s simply supply and demand. If demand is high and supply remains fairly limited, then that [high prices] is what happens.
“One thing I am doing is talking to my former colleagues in Congress. Some have asked: Could we change the Shipping Act? And of course, they can change the Shipping Act. But in terms of our current act, a high price in and of itself is not a violation.”
American Shipper asked Peter Freidmann, a lobbyist at the Agriculture Transportation Coalition, which represents exporters of containerized goods, whether he had heard of any current proposals to reform the Shipping Act to in any way limit ocean freight pricing.
Freidmann responded: “I am not aware of any effort or proposal to control or establish freight rates, now, or at any time since the Shipping Acts were written. In the past, competition between carriers served to keep freight rates affordable, even if sometimes they were very high. But then, there were 20-plus carriers. Now, there are 10 major east-west carriers, and they are consolidated into three alliances. So, practically speaking, shippers are finding that there are really only three carriers left.”
Will Chinese regulators throttle liners?
If U.S. regulators cannot throttle trans-Pacific freight pricing, what about Chinese regulators?
Chinese officials called a meeting with ocean liners on Sept. 11, 2020. During a client call in early October, Jefferies analyst Andrew Lee recounted, “What we heard from the [people in the] meeting themselves was that it wasn’t [regulators saying], ‘You’ve got to cut the rates.’ It was, ‘Carriers are making a lot of money on the trans-Pacific at the moment. Let’s not push it much higher.’”
Trans-Pacific spot-rate indexes plateaued in the months after that meeting, lending some credence to the theory that liners were somehow bowing to Chinese pressure. However, the actual all-in rates including premiums did not plateau and today’s trans-Pacific spot-rate index levels are far higher than they were at the time of last September’s China meeting.
According to Giveans, “I think there certainly was [some fear of regulators] in the fall and winter, where some governments were pushing back and saying, ‘Don’t get too crazy’ because they felt their goods would have to be discounted because the shipping costs were so high.
“But I think because prices [to consumers] have continued to go up and because there’s still so much demand, that has been alleviated. This is a free market.”
https://www.zerohedge.com/economics/why-stratospheric-container-rates-could-rocket-even-higher
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