California to Delay CARB Rule:
California's first-in-the-nation mandate requiring the purchase of zero-emission trucks is facing a delay in enforcement due to a lack of approval from the Biden administration. The California Air Resources Board (CARB) announced that it will not enforce its Advanced Clean Fleets (ACF) regulation, which was set to take effect on January 1, 2024, until it receives permission from the Environmental Protection Agency (EPA) to implement its stricter-than-federal rules under the Clean Air Act. CARB is urging the trucking industry to voluntarily comply with the requirements during this delay.
The ACF rule, approved by CARB in April of 2023, mandates the prohibition of sales of combustion-powered trucks by 2035 and requires trucking fleets to transition to zero-emission vehicles by 2042. The delay primarily impacts drayage fleets, which transport cargo from ports and railyards to warehouses and face early enforcement deadlines to become fully zero-emission by 2035. As part of the rule, brokers that arrange transportation in the state of California have a due diligence requirement to ensure that compliant motor carriers are utilized.
While the trucking industry has raised concerns about the ambitious timeline and technology readiness, the California Trucking Association has agreed not to sue over CARB's authority to enforce the rule without an EPA waiver. They continue to challenge the EPA's approval of a waiver for the state's Advanced Clean Trucks rule.
Middle East Conflicts Causing Rise in Freight Rates:
Attacks by Houthi rebels on commercial vessels in the Red Sea continue, prompting rerouting of ocean container traffic away from the Suez Canal. Even with the international naval task force, Operational Prosperity Guardian, patrolling the area, the attacks persist, with 23 commercial vessels targeted since mid-November. The situation escalated with the recent attack on a Maersk container vessel. This has led to an increase in ocean freight rates.
Most container carriers are maneuvering their vessels away from the Red Sea, resulting in longer voyages and extended lead times for importers. The longer return trips could lead to container shortages at Asian origin ports. While carriers are making efforts to accommodate diversions, congestion and equipment shortages are possible. The disruption is happening as shippers prepare for China's Lunar New Year holiday, which could increase demand and risk congestion.
Freight rates have gone up significantly, with Asia-Europe rates up 173% compared to before the diversions, reaching over $4,000/FEU. Asia-Mediterranean prices have doubled to over $5,000/FEU. Surcharges ranging from $500 to $2,700 per container have been introduced, pushing prices higher. Rates to North America's East Coast have climbed 52% to $3,900/FEU, while prices to the West Coast have also increased sharply. Despite the rate increases and surcharges, carriers have available capacity to address diversions, and demand remains at pre-pandemic levels.
In air cargo, there have been no significant disruptions reported, although some analysts anticipate a shift of more urgent volumes to sea-air services or air cargo alternatives due to ocean freight delays. However, so far, this has not materialized in the air cargo sector.
Air Freight Market Endures Green Challenges:
Achieving new emissions control policies in the air cargo industry in 2024 will be challenging due to market forces and the potential impact on air freight costs. Xeneta's (an analytics platform) 2024 air freight outlook suggests that while environmental regulations have raised concerns about their effect on an already-soft market, the air cargo industry's future growth in demand will be slowed. However, achieving a universal approach and commitment among stakeholders will be difficult in a volatile market.
Xeneta highlighted an example where market forces prevailed over environmental policies: the Netherlands government's plan to introduce flight caps and night curfews at Schiphol Airport was abandoned under pressure, particularly from the US, due to concerns about the commercial impact on airlines.
While air freight emissions are a hot topic, little has been done to reduce them. Fast fashion giants, such as Shein and Temu, have driven increased airfreight activity, despite environmental concerns. Balancing the need to reduce carbon emissions with the global reliance on the air freight sector presents significant challenges for the industry.