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Regulatory Confusion Surrounding Tugboats and the Francis Scott Key Bridge Collapse

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Global Logistics, Global Trade Daily, International Trade, News, Ocean Ports

Regulatory Confusion Surrounding Tugboats and the Francis Scott Key Bridge Collapse

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It has been just over one week since the disastrous Francis Scott Key Bridge collapse. Investigators are making progress along multiple fronts, and the role, or lack thereof, of tugboats is front and center. 

According to tracking data from marinetraffic.com, the Dali cargo ship was unaccompanied when it crashed into the Key Bridge on the morning of March 26. Tugboats operated by McAllister Towing and Transportation aided the Dali out of the dock for roughly 30 minutes before leaving the vessel at 1:09 a.m. At roughly 1:25 a.m., the ship began to veer right, departing the main channel and striking the bridge four minutes and 23 seconds later. 

It is common for tugboats to accompany vessels the size of the Dali out of the ship’s berth and then disengage once they reach the channel. Tugboat regulations vary, and ship owners pay for their services. In the case of the Key Bridge, tugboats peeling off before the vessel reaches the bridge are common. But the question with the Dali remains – had the tugboats escorted the ship to the bridge, what would the likelihood of a collision have been?

The Patapsco River is a vital national trade artery. The Cybersecurity and Infrastructure Security Agency (CISA) is tasked with protecting the US transportation systems sector from risks and threats. While CISA designates the Department of Transportation and the Department of Homeland Security as transportation co-sector risk management agencies, the issue of tugboat regulation and where responsibility lies remains unclear. 

The US Coast Guard is another entity responsible for risks and threats, as is the Joint Information Center (JIC), an investigative arm involving the US Customs and Border Patrol and US Immigration and Customs Enforcement employees. Yet, to date, CISA, the US Coast Guard, and the JIC have yet to publically accept regulatory responsibility as it relates to tugboat protocol. 

The Coast Guard can require tugboat escorts for certain vessels if they are deemed hazardous to navigation. The same applies in the event of precarious weather conditions. However, there appears to be an accountability gap where regulatory ownership is unclear.

The economic fallout from the collision is daunting. The Port of Baltimore generates roughly $3.3 billion a year, and 31,000 vehicles use the bridge daily. Had the tugboats been purposely called off, the captain’s log should reflect that.  

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Global Trade Daily, United states news

Nippon Steel Remains Steadfast in its Bid for US Steel

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US bipartisan agreement is thwarting Japan’s Nippon Steel from purchasing US Steel. President Joe Biden and former President Donald Trump are against the proposed $14.1 billion deal, which was initially introduced in December of last year. 

Nippon Steel remains steadfast in its attempt to salvage the offer, citing broader benefits to US steel union workers should the sale be approved. The Japanese giant claims there would be no plant closures nor layoffs due to the purchase and would even move its US headquarters to Pittsburgh (US Steel headquarters) should the sale go through.   

US Steel was once known as the “arsenal of democracy” during World War II. Founded by Andrew Carnegie, J.P. Morgan, and Charles Schwab, among other prominent industrialists, the past steel colossus was revered worldwide until the deindustrialization of the Rust Belt. By the mid-1980s, American steel production only produced 10% of the world’s steel, down from 40% in the mid-1950s.

A 2021 Congressional Research Service report found that steel plays a vital role in critical infrastructure projects, missile systems, and overall defense. Politically, practically no issues achieve bipartisan support in 2024, yet protecting the steel industry is one. Key swing states such as Ohio, Pennsylvania, and Minnesota employ tens of thousands of steelworkers, and both candidates are vying for their support. 

While Japan is a trusted US ally, Nippon’s nine facilities in China have caught the eye of Democrats and Republicans alike. Between 2001 and 2013, Nippon added facilities to its portfolio amidst aggressive Chinese steel demand. American steel producers remember the period as a time when China would dump excess metal stateside and globally, leading to cratering prices and the unprofitability of several US companies. 

The proposed deal is now in the hands of the Committee on Foreign Investment in the US (CFIUS). CFIUS is tasked with assessing national security concerns, and the US Treasury Department entity is already warning against increased politicization with the proposed sale. 

Should China not be part of Nippon’s portfolio, the US domestic manufacturing issue could likely be resolved. However, in an election year where middle-class families feel the inflationary pinch and Chinese influence has been deemed a national security concern, the deal will remain hotly contested and a politicized issue for CFIUS to wrestle with.  

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Global Logistics, Global Trade Daily

Hapag-Lloyd CEO is Bullish on the Second Half of 2024

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Many continue to be bearish in 2024, but Hapag-Lloyd CEO Rolf Habben Jansen is bullish on demand in the second half of the year. In an interview with CNBC, Jansen notes that inventories are depleted and the recovery post-Chinese New Year, February 10th, has been positive. 

Hapag-Lloyd reported a significant drop in 2023 net profit. Shipping rates were at untenable levels during the last quarter of 2023, and the Red Sea crisis further exacerbated the entire industry. Trade continues to be diverted, and while rates are beginning to decline, Asia to West Coast port rates are up 155% year-to-date, and Asia to East Coast ports have increased 129% year-to-date.

Another issue Jansen touched on was the increase in carbon dioxide emissions as a result of Red Sea diversions. Hapag-Lloyd is aiming for net-zero carbon by 2045, but according to Sea-Intelligence, diversions will likely increase emissions by 260% – 354%. The industry at large has added nearly 5% in vessel capacity to neutralize delays, and sailing faster has also augmented capacity by an additional 8% – 10%. 

A big reason, however, why Jansen remains bullish is the new alliance Hapag-Lloyd has formed with Maersk. The two shipping giants announced the Gemini alliance earlier this year and once in place, the alliance is slated to achieve greater than 90% of schedule reliability. Compared with global reliability in the 51.6% range, the upgrade would be a noteworthy improvement. 

Jansen explained that the alliance rests on the use of a spoke and hub system. Common in the larger transportation sector, the spoke and hub system is a distribution network akin to a bicycle wheel. The hub rests in the middle, and the spokes are the carriers (trucks, planes, or ships). The network is more elastic than traditional end-to-end networks, and Hapag-Lloyd and Maersk believe this model will propel them to 90% schedule reliability. 

Speaking of reliability, the 2M alliance between Maersk and MSC will be discontinued in 2025, according to Maersk. Reliability was a driving factor in Maersk seeking out Hapag-Lloyd as a partner, where the efficient turning of containers ensures freight is moved in the most systematic manner possible. Delayed shipments slow the process, whereas increased efficiency would result in appreciable container utilization.

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Global Logistics, Global Trade Daily, International Trade, News, Ocean Ports

Contaminated Fuel Speculation and the Insurance Fall-Out from the Baltimore Bridge Crash 

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One of the factors investigators are looking into surrounding the Dali cargo ship crash into the Francis Scott Key Bridge in Baltimore is “dirty fuel.” An officer aboard the ship recounted the presence of a heavy smell of burning fuel in the engine room after one of the engines shut down. Dirty or contaminated fuel can create clogging issues with a vessel’s principal power generators.  

Ships use different fuels depending on the points of their cruise. A relatively light diesel fuel is standard while vessels are inside a port, and if contaminated, algae, dirt, and water are the most common culprits. 

The Dali is a Panamax-type ship built in 2015 by Hyundai Heavy Industries. The vessel has a capacity for 10,000 containers and is one of thousands that frequent the Suez and Panama Canals. The Dali underwent more than 20 port state control inspections, and according to the international shipping database Equasis, none of the inspections resulted in the ship’s detention. 

The Singapore-based Synergy Marine Group operated the Dali on the Tuesday, March 26th crash. The ship was hauling cargo for A.P. Moller-Maersk and heading for Sri Lanka. The Dali was moving at an industry-standard speed of roughly 9.2 mph, and weather conditions were stable. 

Insurance analysts expect the bridge collapse to result in multiple multibillion-dollar insurance claims. Disruption to businesses that rely on the port to the bridge itself will require coverage, and the crash victims will likely raise claims against the ship operator. 

The entities that will bear the bulk of the insured cost are the reinsurers, who take on risks sold by the insurers. Britannia P&I Club is the Dali’s insurer, and it is common for specialized marine insurers to have reinsurance coverage of approximately $3.1 billion for vessels like the Dali.

For a point of comparison, thirty-two people perished in 2012 when the cruise ship Costa Concordia sank near an Italian island. Insurers paid over $2 billion to claimants. Meanwhile, in 2022, the car carrier Felicity Ace, caught fire and sank, resulting in approximately $500 million being disbursed under insurance policies.

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Global Logistics, Global Trade Daily, United states news

A US Manufacturing Flex-Work Model Gains Traction

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US manufacturing firms are turning to flexible, employee-driven scheduling as the supply of would-be workers is drying up. Most manufacturing plants operate two shifts: 5 AM to 5 PM and then 5 PM back to 5 AM. Factories require uninterrupted production 24 hours a day, seven days a week. Historically, the easiest way to coordinate this was two 12-hour shifts daily. 

This model has worked for decades, but many factories are having difficulty retaining and attracting new employees amidst a blue-collar labor crunch. The median US manufacturing employee is 44.1 years old – two years older than the average US worker. By 2030, the Department of Labor expects 2.5 million factory workers to retire, compounding a roughly 2.1 million manufacturing jobs shortage. 

Over the past 15 years, factories have turned to automation to mitigate worker shortages. Yet, for some plants, automation can only do so much. Flex-work is a new model in which workers are provided the option to choose their own start times and shift lengths. Employees work closely with their supervisors every two weeks to define their shifts, and supervisors then construct a monthly schedule and fill in the gaps where needed. 

While this sounds simple enough, most plants cite increased costs that come with monthly planning and training should more employees be onboarded part-time. Yet, much of this is offset by a reduction in overtime pay and increased retention. Flex-work is especially attractive for couples working at the same plant with children. They can schedule work times based on the other’s schedule thus making room for child-care duties. 

Before the pandemic, US factories hired eight to nine people for every ten openings. That number has now dropped to six, and the ratio is at its lowest level since 2000. With flex-work, plants are beginning to target segments of the population that had not traditionally been employed in the traditional 12-hour plant shifts. These included young parents and those who care for aging parents or have similar obligations that make traditional set hours difficult to work. 

While the factory churns out the product, other entities along the supply chain must adapt to the flex-work model. One of the biggest obstacles for many plants is finding transportation companies willing to adapt to varied pick-up times during the week instead of one standard schedule for most of the year. This comes at a price, but with an aging workforce and less supply, manufacturing plants must employ flex-work and other employment models to keep up with changing demographics.

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Global Logistics, Global Trade Daily

Global Shipping’s Headaches – a Drought and Rocket Fire 

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Problems in the Suez and Panama canals continue to drive up delivery costs and exacerbate shipping delays. The Suez Canal is embroiled in a geopolitical mess, with the Yemen-based Houthi rebels attacking vessels in reaction to the war in Gaza. Meanwhile, the Panama Canal’s setbacks are climate-based, where a drought has meant less water to feed the canal’s intricate system of locks that enable ships to cross through the waterway. 

Both issues have resulted in increased shipping costs and lengthy delays. Despite being minor hiccups compared to the bottlenecks produced by Covid in 2020 and 2021, many operators are warning of elevated consumer prices should the difficulties continue. 

In terms of solutions, minimizing Houthi attacks is undoubtedly doable. US coalition retaliatory strikes have eliminated up to a third of the rebel outfit’s assets. The Panama Canal, on the other hand, is in the midst of one of the worst droughts since it became operational. The drought began in mid-2023, and some estimates point to more rainfall come the end of May 2024. 

Roughly 18% of global trade volume passed through the two canals in 2023. Volvo and Tesla already halted vehicle production for two weeks in January due to parts shortages. Many apparel companies are turning to air delivery to ensure spring fashions arrive on time. In 2020 and 2021, shippers passed higher costs to consumers, fomenting inflation across an expansive basket of goods.

During the height of the pandemic, daily freight routes between the US and Asia skyrocketed by nearly five times to over $20,000 per box. Today, Suez interference has resulted in average sailing times lengthening by approximately ten days. Most businesses learned a valuable lesson from the pandemic and built up their inventories to mitigate the risk of running out of goods. Well-stocked warehouses, however, might be the only reason consumers do not feel a bigger effect, and those warehouses cannot remain well-stocked for long.

Approximately 14% of seaborne trade to and from the US comes through the Panama Canal. In normal conditions, the canal handles in the neighborhood of 36 ships crossings daily. That figure fell to 24 in November 2023 and has plummeted further, although some recent rainfall has helped. A crossing typically costs $500,000 per ship, but some desperate operators now pay up to $4 million. 

Hapag-Lloyd, Maersk, and a handful of other large carriers have yet to return to the Red Sea. Others are paying private security to guard against rebel attacks, and Suez toll revenue predictably plummeted by nearly half – $804 million in January 2023 to $428 million in 2024.

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Global Trade Daily, United states news

Who Are the Largest Foreign Land Investors in the United States? 

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The United States is a relatively open market for business. In terms of size, the country is the fourth largest by area in the world and outside investors have a range of investment choices covering pastureland, forestland, or cropland. Foreign investment in US land is on the rise but global tensions have moved the conversation from how much land is open to foreign investors to just exactly who is purchasing US land, and why. 

The USDA’s latest data (as of 2021) reports just north of 40 million acres of US agricultural land owned by foreign companies and investors. Canadian investors are the largest foreign land owners and combined with the Netherlands, Italy, the UK, and Germany, the five account for half of all agricultural land owned by foreign entities. 

The US numbers 3,142 counties and parishes and 79% have at least one foreign investor in their county or parish. Maine is an outlier with a surprising 20% of the state’s privately held agricultural land in the hands of foreign investors. Hawaii is second with 9.2% of the island’s land held by foreign actors. In terms of the type of land foreign investors covet, nearly half (48%) in 2021 was forestland followed by 29% of cropland, 18% of pastureland, and 5% of non-agricultural land such as worker or owner housing.  

China

Perhaps the biggest concern surrounding foreign agricultural land ownership in the US centers on China. The latest USDA data points to China being the 18th largest ag-land owner which amounts to 383,000 acres. To put this into context, the total area would be one-third of the size of Rhode Island. In terms of the states Chinese investors have targeted, Texas is number one by a large margin, covering half of China’s investments. North Carolina comes in second with 13% followed by Missouri (11%), Utah (9%), and the remaining 17% scattered rather equally across 24 distinct states. 

The Committee on Foreign Investment in the United States (CFIUS) investigates acquisitions or mergers that could result in a US business or asset coming under foreign control. The Texas Chinese holding is the largest parcel owned by a Chinese investor in the United States. It was purchased with the intent of constructing a wind farm but a Texas law that prevents foreign entities from accessing the state’s electricity grid halted the project.  

Overall, Chinese investment coupled with what the US deems adversarial nations – Venezuela, the Russian Federation, the Islamic Republic of Iran, the Republic of Cuba, and the Democratic People’s Republic of Korea (North Korea) among others – remains small. But the USDA and CFIUS do acknowledge that a better understanding of investor motives and data collection is solely lacking. 

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Global Logistics, Global Trade Daily, United states news

Airline Performance in 2023 – Winners and Losers

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The airline industry suffered arguably its worst two years during 2021 and 2022. The pandemic can explain many critiques, but there was a lot of self-inflicted harm to go around. US carriers were no different, but a 2023 audit revealed a sharp reduction in cancellations and much improved on-time arrivals. Nagging concerns such as passenger complaints, tarmac delays, and baggage handling remain, but the rebound from 21/22 was laudable. 

The Wall Street Journal revealed its 16th annual airline scorecard, examining the overall performance of the largest US airlines. Numbers one and two remained constant compared to 2022 and 2021, but from there, quite a few carriers moved up and down the rankings in 2023.

Delta Air Lines

For the third consecutive year, Delta placed number one. Over the last seven years, the Atlanta-based airline has secured the leader position a remarkable six times. Delta placed no worse than fifth among the seven equally weighted operations metrics and was exemplary in a handful. Their best on-time arrival rate was notable, and Delta registered the lowest complaint rate. 

One of the strategies that has consistently worked well for Delta is offering generous perks to customers who voluntarily switch flights due to overbooking. The volunteer walks away with a perk, and the flight takes off on time despite the overbooking. The one area that can improve with Delta, however, is cancelations. 

Alaska Airlines

Coming in number two was Alaska Airlines. The Washington carrier scored on par with Delta except for mishandled baggage and involuntary bumping. Alaska scored 3 and 4 points below Delta in both categories, respectively. Alaska battles Delta for West Coast passengers and finished with the lowest cancelation rate, something passengers certainly value and the same area Delta struggled with. Alaska spokespeople indicated the airline is introducing new baggage-tracking processes that, believe it or not, are replacing pen and paper in some airports.

Bottom Dwellers

Southwest Airlines had a miserable 2022 and early 2023. Unhappy customers went to social media to express “holiday travel from hell,” which predictably affected the airline’s bottom line. 

In 2022 alone, Southwest went from the fewest to the third most complaints in under 12 months.  

While Southwest struggled, Frontier really underperformed. Per 100,000 passengers, Frontier averaged 38.5 complaints, an unreal four times the average rate of the major airlines. Fares were the principal complaint, followed by flight problems and refund snafus. 

Lastly, Jetblue finished last in on-time arrivals, delays longer than 45 minutes, canceled flights, and tarmac delays. The airline launched a reliability campaign in 2023 and only canceled 1.8% of flights compared to 3.3% in 2022. Positive news, but Jetblue serves a demanding East Coast client base with little patience for errors.  

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Global Logistics, Global Trade Daily, News, Uncategorized

Global Supply Chains Head into an Uncertain 2024 

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It’s been a grueling couple of years for global supply chains. Covid granted challenges previously unimaginable, and geopolitical disruptions are poised to be equally demanding over the coming months, if not the year. Swings in demand will test the planning of freight and logistics companies as will the redrawing of trade maps that had existed for the working life of most employees. 

One of the biggest wins for many CEOs post-Covid was their ability to clear inventory. This was welcome news to shareholders as companies were grasping for reliable demand models during the roller-coaster pandemic years. The inventory-to-sales ratio has remained steady at 1.30 since May 2023 and firms welcomed an additional win with a 3.1% holiday sales bump compared to 2022. All this suggests that the “just-in-case” hoarding strategy of the pandemic years is over and retailers are easing back into a “just-in-time” strategy. 

The trucking industry was rattled in 2023, marred by bankruptcies and layoffs. If demand picks up a recovery in freight rates is possible for 2024, yet overall freight flows are tied to some very vulnerable international entanglements. Another interesting wrinkle for 2024 is the shift away from China. Importers have made noticeable inroads with countries like Mexico, Vietnam, and India as alternative suppliers. In 2023 Mexico eclipsed China as the number one US trading partner and logistics and freight companies reported heavy-duty tractor orders from Mexico up 150% in November of 2023 compared to the same month a year prior.

The Disruptors 

The wars in the Middle East and Ukraine continue to disrupt the flow of everyday consumer goods including oil and grain. The Mexican border is also a point of concern with a migrant surge that has required the US Customs and Border Protection to address via periodic truck and rail closings. 

Houthi rebel attacks from Yemen are compromising the Suez Canal, while the Panama Canal suffers from a lack of rainfall. The latter has reduced the quantity of vessels through the canal, a vital trade corridor between the East Coast of the US and Asia. 

Finally, shipments to US East Coast and Gulf Coast ports languished during the final months of 2023. This was a boon for West Coast ports resulting in double-digit gains over the previous year. The maritime industry is keeping a close watch on a potential dockworkers strike at the East and Gulf Coast ports unless a new labor agreement can be resolved before September of this year. 

 

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Global Trade Daily, United states news

Rising Costs and Regulatory Bottlenecks Remain Stubborn Barriers to US Hydrogen Rollout

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While increased US clean hydrogen production is a safe bet, permitting issues, access to capital, and equipment costs are looming bottlenecks. Approximately $7 billion in grants is being disbursed by the Biden Administration as part of the 2021 infrastructure law aimed at jumpstarting clean hydrogen production. The administration’s climate goals are highly contingent on making the cost of clean hydrogen production closely competitive with hydrogen made from natural gas. Yet, investors are wary of structural impediments.  

Recipients of the $7 billion in grants will be energy infrastructure companies, hydrogen suppliers, industrial buyers, and state and local partners. Nearly all the US hydrogen currently produced comes from heating natural gas. This is a highly cost-effective process but the greenhouse gas emissions are considerable. Machines that can split water thereby resulting in green hydrogen are the preferred alternative as emissions are negligible and clean. This is an ideal future for most countries but the process is more costly than the status quo.

One region that is certain to benefit from the subsidy avalanche is Appalachia. West Virginia Pennsylvania, and Ohio are expected to form a regional hub to eventually connect into a larger national network. The “heartland hub” is another funding recipient comprised of North and South Dakota as well as Minnesota. California is its own hub as is Texas, and a hub for Michigan, Illinois, and Indiana make up the midwestern states. 

In terms of private actors, the chemical producer DuPont, a pipeline operator, Enbridge, hydrogen producers Plug Power, Air Liquide, and Air Products and Chemicals, coupled with Chevron and Exxon Mobil are slated to invest over $40 billion across the previously mentioned hubs. Industrial hydrogen buyers will receive an additional $1 billion in incentives to encourage purchases from the hubs.   

At the moment, inflation, the cost of energy, and raw materials are ever-present in conversations with investors. Solar, wind, and hydrogen projects were always a riskier gamble and the rising interest rate environment is only exacerbating the offer. An estimate by the World Platinum Investment Council pegs roughly $300 billion of subsidies currently available for hydrogen projects. This is up nearly 6-fold from just two years ago. Yet, permitting remains slow and is weighing on investors as they consider the alternatives.

Lastly, access to buyers as it relates to hydrogen delivery is a major concern. The wind corridor from North and South Dakota down to Texas is an advantageous region to produce hydrogen. But the buyers of hydrogen – chemical plants among others – are located along the coasts. Policymakers are operating in an unfriendly economic environment but without attractive delivery channels, subsidies alone will not be enough to advance a speedy rollout.