Troubled Waters

Maersk CEO Vincent Clerc, in a recent online event, highlighted the severe impact of attacks on ships in the Red Sea and Gulf of Aden on logistics and supply chains. Rerouting ships around Africa requires additional vessels, exacerbating the scarcity of capacity amid high demand for container transport.

The company’s preparations for demand peaks around Lunar New Year helped mitigate early impacts, but challenges have intensified since April and May. Increased costs and limited capacity have led to higher freight rates, with Maersk committing to long-term elevated charter rates.

Clerc stated that Maersk would only resume using the Red Sea route when safety could be ensured. A return to usual routes would involve resolving port congestion as ships converge from different routes.

The International Longshoremen Association (ILA), representing 85,000 port workers, halted talks with the US Maritime Alliance in June over automation disputes, with the current labor agreement expiring on September 30. The ILA is also demanding a 40% salary increase, citing significant profits by liner operators.

Lars Jensen, CEO of Vespucci Maritime, warned that a strike could lead to severe port congestion and vessel delays, exacerbating global supply/demand issues and potentially driving rates to record highs similar to those seen after the Ever Given incident in 2021.

The ongoing Red Sea crisis is also affecting tonnage and supporting high freight levels. Jensen suggested that stakeholders should prepare for the possibility of prolonged rerouting around Africa, potentially lasting several years, due to the persistent conflicts in the Middle East and the ineffective Western military presence in the region. This scenario would necessitate a reevaluation of supply chains and sourcing patterns.

The updated strategy introduces new high-priority sectors for enforcement: aluminum, polyvinyl chloride (PVC), and seafood, due to their high risk of using forced labor involving Uyghurs and other ethnic minorities from the Xinjiang Uyghur Autonomous Region (XUAR). Previously designated sectors such as apparel, cotton, silica-based products, and tomatoes remain priorities.

The strategy, initially published in June 2022, outlines a comprehensive approach involving strong enforcement by the U.S. Customs and Border Protection (CBP), expansion of the UFLPA Entity List, and increased collaboration with stakeholders.  A link to the Entity List can be found here.

Recent updates include the addition of three new entities to the UFLPA Entity List, bringing the total to 68 Chinese companies whose goods are restricted from the U.S. The new high-priority sectors will be subject to various enforcement actions, such as inclusion on the UFLPA Entity List, export limitations, economic sanctions, and visa restrictions, to discourage participation in human rights abuses.

The strategy aligns with President Biden's memorandum from November 2023 on advancing global worker empowerment and labor standards. DHS and the FLETF are dedicated to upholding fair labor standards, supporting American workers, and collaborating with international partners to eradicate forced labor from supply chains.