One of our least favorite new trends of 2020? Blank sailings. To be fair, we saw the biggest surge in these about halfway through 2019. They came largely as a result of the U.S.-China trade war, but we’re going to continue to see these more frequently as the trade arena sees more turmoil.
What’s a blank sailing?
For those who haven’t had to deal with one firsthand, blank sailings are simply a cancellation for the planned sailing of a specific vessel. They happen all the time, and they’re something that shippers must constantly be prepared for. Sailings can be canceled due to inclement weather, necessary vessel repairs, port congestion, and countless other reasons. A big part of why we saw an increase in 2019, however, was simply due to a decrease in demand. The steep tariffs imposed on goods traveling between the United States and China sharply slowed traffic in trans-pacific lanes, especially in the latter half of the year.
In these situations, blank sailings are a huge cost savings for carriers, but can mean a substantial disruption in timing for you. When demand is low, the ships that are scheduled to sail 1-2 times a week are moving with lots of empty space, which leaves carriers practically throwing money overboard as they pay for fuel for a ship that’s only carrying three-quarters of what it can. To make the money spent on fuel stretch further, a carrier can eliminate one sailing from its schedule, reallocating the containers scheduled to sail on that ship to others, getting them closer to sailing at full capacity. While this move makes a lot of sense, it means that your cargo could be delayed much more frequently than normal, often by a week or more.
As new trade deals are negotiated and enacted between the two global powers, it’s wisest to avoid making any assumptions or expectations for how this year may shape up—especially since this week’s trade deal didn’t even mention tariff increases or decreases for phase one. Hours later, however, the USTR announced separately that tariffs for Section 301 List 4A tariffs will be reduced by half on February 14th. The fact that these two forces are working somewhat independently only increases uncertainty surrounding the future of the trade war.
One thing that we can anticipate for certain, though, is the impact of the enactment of IMO 2020. The International Maritime Organization’s (IMO) new sulfur limits have been in effect for just over 2 weeks now, requiring oceangoing vessels to use low sulfur fuel and reduce their sulfur emissions by more than 80%. While this is a dramatic change, the transition has gone fairly smoothly so far. Many anticipated issues with shortages of the fuels required to meet these standards and increased operating expenses for carriers. Many carriers even started charging customers to offset these increases months ago. While these climbing expenses are increasing the frequency of blank sailings, their overall impact should be making the shipping industry more efficient and eco-friendly.
What’s the impact?
As the year goes on and carriers continue to feel the lasting impact of these changes, we can anticipate more vessels moving out of commission for the installation of scrubbers. Scrubbers, or Exhaust Gas Cleaning Systems (EGCS) can be installed on vessels to remove certain harmful components from the exhaust generated from their engines, which is a much cheaper option than switching to compliant fuels.
For both importers and exporters, however, the bigger impact will be seen on your invoice. With costs surges this steep, much of the burden falls on those with freight to move. Carriers have implemented a wide variety of names for low-sulfur surcharges for containers. Shippers can expect to see Environmental Fuel Fees (EFF), IMO 2020 Transition Charges (ITC), Environmental Compliance Charges (ECC), and more tacked onto their bills.
While the implementation of IMO 2020 has so far gone much more smoothly than anticipated, we’re still expecting 2020 to be a fairly turbulent year for global trade. The big takeaways? Plan ahead and don’t assume anything. For help keeping your supply chain running smoothly, or to ask questions for our trade experts, get in touch.