Category: News

UPS is hitting cargo owners with multiple surcharges in the run-up to the peak season – with the biggest hit on imports from China and its territories. Starting on 15 September, the integrator is to impose a ‘surge fee’ on US imports arriving by air from China and 12 Australasian countries or territories.

Key points

• UPS will introduce a surge fee on US imports from China and 12 Australasian countries starting 15 September.
• The fee for parcels from China, Hong Kong, and Macau will be 50 cents per pound, while for other countries, it will be 25 cents per pound.
• Fuel surcharges also rise significantly, impacting overall shipping costs.
• Observers suggest the surcharges target volumes from e-commerce giants like Temu and Shein.

UPS Imposes Surge Fee

Starting 15 September, UPS will introduce a new ‘surge fee’ on US imports coming from China and 12 other Australasian nations. For parcels originating from China, Hong Kong, and Macau, this fee will be 50 cents per pound, while parcels from the remaining countries will face a 25 cents per pound charge. The surcharge is based on billable weight, which allows UPS to choose between dimensional or physical weight, depending on which is greater. John Haber, chief strategy officer of Transportation Insights, noted that the new surcharge does not have a specified end date and will apply to all types of services.

Revenue Implications for UPS

The increased charge on parcels from China and its related territories is likely to generate substantial revenue for UPS. In the second quarter alone, UPS saw a 20.6% year-on-year increase in volumes from China to the US. Observers quickly identified that these additional charges are primarily aimed at huge volumes from Chinese e-commerce giants Temu and Shein. Despite their significant volumes, the yield on these de minimis shipments has been quite low. By adding 50 cents per pound, UPS aims to address these yield issues.

Further Surcharges and Impact on Shippers

In addition to the surge fee, UPS is also attempting to boost its income via fuel surcharges. Effective from 19 August, these surcharges have already seen increases. For domestic ground service, the surcharge rose from 16% to 16.75% within a week. Similarly, fuel surcharges for air shipments climbed from 15.75% to 16.75% on 26 August, while international air exports and imports saw increases to 20.75% and 24.5%, respectively. UPS has also expanded its fuel surcharge to cover more products, including various ‘value-added services’. A notable change is the $20 fuel surcharge for address corrections, even though 90% of these adjustments are made before package delivery.

John Haber estimates that these combined charges could significantly impact shippers, with some large shippers potentially seeing an additional $100,000 added to their annual shipping bills solely from fuel surcharges.

Future Prospects and Alternatives

According to John Haber, FedEx is likely to match UPS’s new charges, as the two companies usually align their pricing strategies. While FedEx has not announced a surge fee yet, it has implemented an ‘import demand surcharge’ of 25 cents per pound on shipments to the US from China, Hong Kong, and the Philippines. Haber believes that additional countries may be added to the ‘surge fee’ list, and that UPS might further adjust fuel surcharges throughout the year. Shippers will need to diligently scrutinize their transport invoices to manage costs effectively and may explore less expensive alternatives as they navigate these rising surcharges.

“They’re rolling the dice,” Haber commented regarding UPS management’s strategy. “Will they lose some volume? Yes,” he added. UPS’s aggressive surcharge strategy appears to be a calculated risk aimed at increasing its revenue amid growing operational challenges.

Maryland has awarded a $73 million contract to Kiewit Infrastructure for the first phase of rebuilding the Francis Scott Key Bridge in Baltimore, which collapsed in March following a collision with a container ship.

Key points

• The M/V Dali crashed into the Key Bridge on March 26, killing six maintenance workers and causing significant structural damage.
• The Maryland Transportation Authority has allocated $73 million to Kiewit Infrastructure for the project’s initial phase.
• The project’s total cost is estimated to be $1.7 billion, with completion expected by 2028.
• The rebuilt bridge will include enhanced pier protections and a taller structure for accommodating larger container ships.

Details of the Incident and Immediate Aftermath

The accident that led to the bridge’s collapse occurred on March 26 when the M/V Dali container ship collided with the Francis Scott Key Bridge. The collision tragically claimed the lives of six maintenance workers and shattered the bridge, pieces of which fell into Baltimore’s main shipping channel. This incident led to the channel being closed for several months to clear the wreckage and remove the Dali from the area.

The Contract and Its Implications

On August 29, the Maryland Transportation Authority’s (MTA) board awarded a $73 million contract to Kiewit Infrastructure for the project’s first phase, the Associated Press reports. This initial phase will focus on the design work and the demolition of the still-standing portions of the bridge. Kiewit will have exclusive rights to negotiate for the project’s second phase, which will cover the majority of the construction activities required to rebuild the bridge.

Long-term Plans and Improvements

The MTA aims to have the full rebuilding project completed by 2028, with a total estimated cost of $1.7 billion. Apart from reconstructing the bridge, the project will also incorporate better pier protections to prevent future incidents involving ship collisions. Additionally, the new design will feature a taller structure to accommodate the larger container ships that frequent the Port of Baltimore.

A coalition of shipping stakeholders has delivered a business plan to Oregon Governor Tina Kotek, containing proposed measures to keep international container service running at the Port of Portland‘s Terminal 6 (T6).

Key points

• A coalition delivered a detailed business plan to Oregon’s Governor to maintain container services at Terminal 6 in Portland.
• The terminal initially planned to shut down container intake due to financial losses but received a reprieve with a $40 million state investment.
• The port aims to double container volumes at T6 by 2032, with the support of shippers, carriers, operators, and longshoremen.
• Further financial support for T6 could be included in Oregon’s 2025-2027 budget, pending state legislature approval.

Stakeholders Propose Plan Amidst Financial Struggles

In April, the port had initially announced plans to shut down container intake at T6 by October, after the terminal experienced $30 million in losses over three years. That led to an outpouring of advocacy from local businesses and lawmakers, who voiced concerns over losing what’s currently Oregon’s only international container terminal. The terminal got a reprieve in May, when Governor Kotek said that she would be allocating $40 million to fund capital investments at T6, on the condition that stakeholders at the port put together a comprehensive business plan.

Plan to Boost Container Volumes and Stakeholder Collaboration

The consequent plan details how T6 has often struggled with container volumes, adding that the port has been negotiating with ocean carriers to increase vessel allocations at the terminal. Over the next five to seven years, the port plans to work with shippers, carriers, operators and longshoremen to double container volumes at T6 by 2032. The port also agreed in 2023 to 16-20% rate increases for carriers using the terminal.

Executive Commitment and Future Financial Support

“Making sure container service remains available for Oregonians and businesses across the region will require public and private support,” Port of Portland executive director Curtis Robinhold said in an August 23 release. “This is a critical piece of Oregon’s economy, and it urgently needs financial assistance from the state to continue to serve shippers across all of Oregon.”

Potential for Additional Funding

More financial help could be on the horizon for T6 in Oregon’s upcoming 2025-2027 biennial budget, which includes a proposal for another $35 million to fund container operations at the terminal, and channel maintenance costs for the lower Columbia River. Those funds still need to be approved by state lawmakers in September.

For more information, you can check out the related article on MarineLink. Additional insights are available from OregonLive and JOC.

The container shipping industry reported a significant profit increase in the second quarter of 2024. According to John McCown’s quarterly report on liner sector earnings, net income reached $10.2 billion—up from $5.4 billion in the first quarter and 14.7% increase compared to the same period last year.

Key points

• Net income soared to $10.2 billion in Q2 2024, up from $5.4 billion in Q1.
• The industry displayed a 14.7% year-over-year increase in profits.
• Global capacity reduced by 8% due to disruptions in the Red Sea.
• Largest worldwide volume growth noted since the pandemic.

Profit Surge and Future Projections

John McCown highlights in his report that this marks the second consecutive quarter of significant bottom-line improvement, following a net loss of $0.7 billion in Q4 2023. “Current pricing and volume data is telegraphing that there will be another material increase in net income in Q3 2024,” he notes. This optimism is underpinned by the recent upturn in profits after several challenging quarters.

Red Sea Crisis and Its Impact

The recent profit surge is largely attributed to the geopolitical crises in the Red Sea. Missile and drone attacks by Iranian-backed Houthis have forced ships to reroute around the Cape of Good Hope, effectively reducing global shipping capacity by 8%. The resultant disruptions have created a ripple effect, influencing supply chains and shipping rates globally. More details on the crisis can be found here.

Unprecedented Volume Growth

The industry has recorded unprecedented volume growth, with the second quarter seeing a 6.1% increase following an even stronger 8.3% rise in the first quarter. “This is the biggest volume growth experienced since the pandemic and resulted in Q2 2024 representing the largest worldwide volume quarter ever,” McCown states. This growth underscores the resilience and recovery of the global trade sector post-pandemic.

Operating Margins and Carrier Returns

Meanwhile, Alphaliner reports that average operating margins for leading carriers exceeded 20% in Q2, a level only seen during the COVID-19 pandemic. The average return for carriers rose from 11.4% in Q1 to 21.6% in Q2, showcasing a thriving industry despite prevailing challenges. Such strong operating margins signal the effectiveness of strategic adjustments made by carriers to navigate through turbulent times.

Cargo thefts at freight hubs in major cities across North America increased 49% year-over-year in the first half of 2024. According to data released by cargo security company Overhaul on August 22, 45% of cargo thefts were in California, the largest share of any state. Roughly 36% of those thefts took place in what Overhaul calls the “Southern California Red Zone,” encompassing a 200-mile radius centered on the Ports of Los Angeles and Long Beach. That red zone also experienced as many cargo thefts in the first six months of the year as Texas, Tennessee, Illinois, Georgia and Arizona combined.

“This report should be a wake-up call,” Overhaul CEO and founder Barry Conlon stated. “Criminals are not only more organized, but they’re also tracking loads as they leave warehouses and distribution centers known to store valuable products, waiting to strike when vehicles are left vulnerable.”

The increase in cargo thefts in the Southern California Red Zone is attributed to its status as the West Coast’s largest shipping hub and the presence of numerous large distribution centers. Thieves typically monitor a warehouse or distribution center, wait for a shipment to leave, and then follow it until the vehicle stops and is left unattended. They then break into the vehicle, take its cargo, and load as much as they can into a nearby van or truck. Police data gathered by Overhaul showed that thieves often follow shipments for more than 200 miles, waiting for drivers to stop for breaks mandated by the Department of Transportation.

In Canada, cargo thefts were predominantly concentrated in Ontario, which accounted for 92% of all incidents in the country. The remaining thefts were scattered across British Columbia (3%), Saskatchewan (2%), Alberta (2%), and Quebec (1%).

Analysis and implications of rising cargo thefts

The dramatic increase in cargo thefts at North American freight hubs is an alarming trend with significant implications for the logistics and supply chain industries. The data from Overhaul reveals that criminals are becoming more sophisticated and organized, focusing on high-value targets and employing calculated strategies to execute thefts.

The Southern California Red Zone’s prominence as a shipping and distribution hub makes it especially vulnerable. The high concentration of thefts in this area can be linked to its logistical importance and the availability of goods stored in large distribution centers. This corridor’s role as a critical node in the domestic and international supply chain increases the appeal for cargo thieves.

The tactics of monitoring and following shipments highlight the importance of enhancing security protocols and technological interventions for tracking and protecting cargo. Overhaul’s report suggests that intervention strategies focusing on driver vigilance, real-time cargo tracking, and tighter coordination with law enforcement could mitigate risks.

In the Canadian context, the overwhelming majority of thefts in Ontario underscores the need for regional-specific security strategies. Since Ontario is a critical hub for Canadian trade, especially with the extensive distribution and warehousing infrastructure, bolstering security measures in this area could have resounding positive effects.

This rising trend in cargo theft not only has direct monetary implications due to lost goods but also disrupts the entire supply chain, causing delays and increasing operational costs. As companies grapple with this issue, there may be a shift towards investing in more robust security technologies and comprehensive risk management solutions.

For businesses involved in freight forwarding and logistics, this spike in cargo thefts could lead to higher insurance premiums and stricter regulations. The increased threat level calls for industry-wide reforms and a collaborative approach to developing resilient and adaptive security strategies, ensuring the safe and timely delivery of goods across North America.