Business

Southwest and its pilots’ union have negotiated a new contract.
The five-year deal is worth $12 billion, according to the pilots’ union.
The carrier is the last of the major airlines to reach a deal with aviators.

Southwest Airlines ranked as the second-best domestic airline, according to Bounce’s 2023 Airline Index.
Aaronp/bauer-griffin | Gc Images | Getty Images

Southwest Airlines and its pilots’ union have reached a new preliminary labor agreement, ending months of tense negotiations.
Southwest is the last of the largest U.S. airlines to strike a deal that is set to give pilots big raises.

The union didn’t immediately provide details about the pay increases, but the five-year deal is worth about $12 billion, Casey Murray, president of the Southwest Airlines Pilots Association, told CNBC on Tuesday. In comparison, larger rival United Airlines’ new four-year pilot contract is worth about $10 billion, according to the aviators’ union.
Southwest’s pilots will need to approve the contract. CNBC reported earlier this month that the two sides were close to a deal.
“We are pleased to reach an Agreement in Principle with the Southwest Airlines Pilots Association for Southwest’s more than 10,000 Pilots,” Southwest said in a statement. “The AIP is a key milestone in the process, and we look forward to the next steps.”
American, United and Delta finalized pilot deals earlier this year that were worth billions and gave aviators double-digit pay hikes. The Covid-19 pandemic derailed negotiations across the sector, pausing pay increases across the highly unionized industry even when demand returned and inflation hit multidecade highs.
As travel demand snapped back, pilots, flight attendants and other aviation workers have pushed for not just higher pay, but also better working conditions such as more predictable schedules.

Southwest pilots and flight attendants have complained about erratic schedules, particularly during disruptions. One driver of Southwest’s holiday meltdown last year, which stranded some two million customers, was old software that left crews out of position for rescheduled flights. The U.S. Department of Transportation fined the airline $140 million for its handling of the crisis, it announced Monday.
Southwest’s flight attendants recently rejected a preliminary deal in a vote, though the union has said there will be a re-vote, citing complaints about technical glitches in online voting.
Labor unions have flexed their power throughout the year, yielding a string of big labor deals including agreements between Hollywood studios and actors, and the studios and writers, as well as between automakers and the United Auto Workers union. Those agreements followed prolonged strikes. More

General Motors has roughly halved the size of its Buick dealership network in the U.S. through an ongoing voluntary buyout program.
The 1,000-store reduction is meant to increase throughput and profits at the remaining stores, according to Duncan Aldred, global head of GM’s Buick and GMC brands.
Buick plans to continue to offer buyouts, which have cost GM about $1 billion thus far, into next year.

2024 Buick Envista

DETROIT – General Motors has cut the size of its Buick dealership network roughly in half in the U.S. through an ongoing voluntary buyout program, an executive told CNBC.
The 1,000-store reduction aims to increase the amount of sales per location, or throughput, and profits at the remaining dealers, according to Duncan Aldred, global head of GM’s Buick and GMC brands. The buyouts also allow dealers who don’t want to invest in electric vehicles to get out of the business.

“What this is enabling us to do that is triple the throughput of the remaining dealers,” Aldred said during an online interview. “I think it’s fair to say that I’m really pleased that we achieved it.”
Buick plans to continue to offer buyouts, which have cost GM about $1 billion thus far, into next year. The average sales of the remaining stores still trail those of GM’s GMC brand, which largely shares showrooms with Buick, according to Aldred.
A majority of the dealers who took buyouts were smaller stores, which represented only about 20% of Buick’s annual sales. As part of the buyouts, the company offers payments for the dealers to cease operating their businesses.
The voluntary buyout program with Buick’s roughly 2,000 U.S. franchise dealers started last year, as the brand began investments in its transition to exclusively offering all-electric vehicles domestically by 2030.
Dealers need to invest in training, tools, and special equipment for the EV transition. Buick declined to disclose how much investment is needed, saying specific costs may vary depending on the size and scope of the dealership.

Duncan Aldred, vice president of Buick-GMC sales for General Motors Co., speaks next to a GMC Sierra Denali HD truck displayed during an event in Chula Vista, California, U.S., on Tuesday, Jan. 22, 2019.
Sandy Huffaker | Bloomberg via Getty Images

Aldred said the company need to reduce the size of the dealer network regardless of the all-EV plan, which he confirmed it is still targeting for 2030. However, he said meeting that goal will largely depend on customer demand and acceptance of EVs in the years ahead, “We will very much play to the market demand.”
Buick does not currently offer an EV in the U.S. The brand’s lineup consists of four gas-powered crossovers and SUVs, with starting prices ranging from about $22,400 to $43,900.
The brand offers hybrid vehicles in China, but Aldred declined to say whether Buick would offer or import such vehicles domestically. Hybrids are increasingly viewed as a potential way to help automakers meet more stringent U.S. fuel economy standards amid slower-than-expected EV sales.
Buick’s U.S. sales are recovering from the coronavirus pandemic and supply chain issues. The brand’s sales through the third quarter had climbed 63% from their sluggish levels a year earlier. The brand sold less than 104,000 vehicles in 2022. That compares with pre-coronavirus pandemic levels of roughly 207,000 in both 2018 and 2019.
The brand’s newest entry – a small entry-level crossover called the Envista – and normalizing fleet sales are expected to help boost Buick’s sales back to pre-pandemic levels, Aldred said. More

Target blamed theft and violence when it closed nine stores in four cities earlier this year, but a CNBC investigation found reported crime is worse at most of the locations it kept open near those stores.
In some cases, Target chose to keep operating stores in busier areas that had better foot traffic or higher median incomes, even though the locations saw more theft and violence.
CNBC’s findings cast doubt on Target’s explanation for the store closures and raise questions about whether the company’s announcement was designed to advance its legislative agenda and obscure poor financial performance.

On Sept. 26, Target set off a national firestorm when it said it would close nine stores in four states because theft and organized retail crime had made them too dangerous to run.
On its face, Target’s announcement was evidence that retail crime was preventing one of the country’s most prominent retailers from operating stores profitably and safely. It challenged skeptics who believed that retailers had exaggerated the impact of organized retail crime and used it as an excuse for poor financial performance.

Target’s shuttered small-format store on Folsom Street in San Francisco’s SoMa neighborhood, November 2023.
Gabrielle Fonrouge | CNBC

There was just one problem with the explanation Target gave for closing stores: The locations it shuttered generally saw fewer reported crimes than others it chose to keep open nearby, a monthslong CNBC investigation has found. 
CNBC’s findings cast doubt on Target’s explanation and raise questions about whether the company’s announcement was designed to advance its legislative agenda — seeking a crackdown on organized retail crime — and to obscure poor financial performance at the stores as it grapples with sliding sales.

In some cases, Target chose to keep operating stores in busier areas that had better foot traffic or higher median incomes, even though the locations saw more theft and violence, the probe revealed. In those areas, police departments may be better funded due to higher tax bases, and shoppers may have more to spend on discretionary goods.
Many of the locations Target closed were “small-format” stores the company opened over the last five years as part of an experiment to expand its footprint in dense, urban areas. The moves followed Target’s decision to shutter four similar stores in the spring that it said were underperforming, Retail Dive previously reported.
At the time it announced the nine store closures in September, Target said, “We cannot continue operating these stores because theft and organized retail crime are threatening the safety of our team and guests, and contributing to unsustainable business performance. We can only be successful if the working and shopping environment is safe for all.” 

The news came just hours after the National Retail Federation issued a key annual retail security survey — in which it said violence at stores had increased but losses from theft hadn’t changed much — and exactly one month before the trade group was planning to lobby Congress for stiffer punishment for organized theft offenders. Target CEO Brian Cornell sits on the NRF’s board of directors and is a member of its executive committee. 
One longtime retail executive and expert questioned whether Target’s claims about theft at the stores were designed to mask its struggles, as the retailer’s sales fell from the prior year in both its second and third quarters.
“I don’t want to use the word ‘stunt,’ because I don’t know exactly what went on in Minneapolis [where Target is based], but to me, it read like a stunt, looking to divert attention from the company’s lack of performance overall,” said Mark Cohen, a professor and director of retail studies at Columbia Business School who previously served as the CEO of Sears Canada, Bradlees and Lazarus department stores. 
“They did not disclose their actual shortage statistics,” he added. “They talked about it in general terms; they did not disclose any other factors that would have caused them to decide to close any of those stores. They implied that the only reason they were closing the stores was because of theft. That may or may not be true. My guess is: Not true.”
In response, Target spokesperson Jim Joice told CNBC that as a growth company, Target is “continuously opening new stores, initiating remodels, investing in our team and infrastructure, and refining our operations as we seek to deliver the shopping experience that people have come to expect of Target.”
“In 2023 alone, we opened 21 new stores and remodeled 150 stores as part of our nearly $5 billion investment in strategic initiatives. The recently announced store closures related to safety, retail theft, and unsustainable business performance represent less than 0.5% of our U.S. footprint, with 1,956 stores currently operating and serving our guests,” Joice said.

Target shoppers are encouraged to call for help accessing products that are kept in locked cases.
Gabrielle Fonrouge

CNBC used public record requests and law enforcement sources to obtain crime statistics and 911 call data for 21 Target stores in New York City, Seattle, the San Francisco Bay Area, and Portland, Oregon — the four areas where the retailer closed stores. The data includes the nine stores Target shuttered and similar locations it kept open nearby, spanning from January 2021 through September 2023, when the closures were announced. The records show how many times Target was listed as the victim of a crime at the locations, or how many times police were called to the stores and arrested someone, said they addressed the issue or generated a report or log of what occurred. 

CNBC’s methodology

When analyzing 911 call logs and other crime data for this report, CNBC included in its tally only incidents that led to an arrest, police report or log, or incidents that police said they responded to and handled. Unfounded complaints, duplicate calls, requests for backup, and store and welfare checks were weeded out from the logs and not counted, along with other irrelevant information. Mental health crises, overdoses, vehicle thefts, vehicle burglaries and other events that weren’t directly related to Target or appeared to happen outside the confines of the store were also not included.

The records paint a startling picture of the frequent crime at the locations. But they also show a clear trend. Nearly every store the retailer closed saw less police activity and fewer reported crime incidents than the locations it kept open nearby. 
Only one of the nine stores that Target closed across the four regions, a location in Pittsburg, California, saw more crime and police activity than its closest comparable location, in Antioch, California, according to CNBC’s analysis.
Store-specific crime data for the nine locations Target closed has not been previously reported.
Like most data on theft, organized retail crime, and “shrink,” or retailers’ inventory loss, the records obtained by CNBC are not complete. Theft and crime overall are difficult to measure, as they frequently go unreported and undetected, experts have told CNBC.
Target declined to provide its internal crime figures. Without those numbers, the records obtained by CNBC are “the only picture that you’re going to get” about what crime looked like at the locations the retailer closed and the ones it didn’t, said Christopher Herrmann, an assistant professor at John Jay College of Criminal Justice and an expert in crime analysis and mapping.
“It’s interesting that they’re using public safety, or employee safety, as an excuse, kind of, for closing the stores,” said Herrmann. “Because the reality is, they’re not closing the stores with the highest rate of retail theft.”
In response, Target’s Joice told CNBC that “store-level incidents vary widely in severity, and police data won’t show the full extent of what our teams experience on the ground.”
“We have repeatedly shared financial data and internal data on the increase of theft-related crime,” Joice said. “We have also consistently conveyed our emphasis on safety and highlighted team members’ experiences that demonstrate the impact that theft and organized retail crime have had on our company, our guests, and the communities we serve.”
“We continue to invest heavily in safety, including strategies to prevent and stop theft and organized retail crime in our stores, as well as partnering with law enforcement, legislators, and retail peers to seek long-term solutions,” Joice said.
Target has previously said it saw a “marked increase” in theft involving violence or threats between 2021 and 2022, and at the start of 2023. In the first five months of this year, stores saw a nearly 120% increase in those incidents, the company has said.

The San Francisco Bay Area

Target closed three stores in the San Francisco Bay Area — one in San Francisco, one in Oakland and another in Pittsburg, a suburb about 40 miles outside the city. 

All the locations were within a few miles or a short drive away from another Target that remained open, which could have played a role in the company’s decision to shutter them, experts said.
Retailers often “miscalculate how much the new store will cannibalize existing stores,” said Cohen, of Columbia Business School.
Target opened its now-closed small-format store in Oakland in 2019, just two miles away from its Emeryville location. Between January 2021 and September 2023, 96 crime incidents were reported at the Oakland store compared with 440 at the Emeryville store over the same time frame. 

Target’s Emeryville, California, location remains open about two miles away from a store the retailer closed in Oakland.
Gabrielle Fonrouge | CNBC

The findings reflect some overall theft trends in Oakland and Emeryville in 2023. Overall theft, excluding car theft, was down 15% in Oakland from Jan. 1 to Oct. 29, compared with the same period a year ago, according to police records. In Emeryville, petty theft and grand theft were up 16% and 14%, respectively, for the period from Jan. 1 to Oct. 31, compared with the same period a year ago, police records show.
Demographics is another factor that could be at play. In the ZIP code where the Oakland store is located, the median income level is $76,953, compared with $114,286 in Emeryville, according to U.S. Census Data.
People with higher incomes tend to have more money to spend on discretionary goods. Police departments in those areas may also be more inclined to enforce property crimes such as theft if there is less violent crime to attend to, which could explain the difference in police responses between stores, experts who study crime have told CNBC. For example, one homicide and three rapes have been reported in Emeryville so far this year. In comparison, 106 homicides and 159 rapes have been reported in Oakland in the same time frame.

Looters rob a Target store during protests in Oakland, California, on May 30, 2020, over the death of George Floyd.
Josh Edelson | AFP | Getty Images

Within the city of San Francisco, the small-format store on Folsom Street that Target closed saw at least 84 crime incidents that resulted in police reports between January 2021 and September 2023.
Two miles away at Target’s sprawling Union Square location, which remains open, 486 incidents were recorded during the same time frame. 
The stores’ neighborhoods and the foot traffic they saw also differentiated them.

The Target sign from its Mission Street store in San Francisco’s Union Square glows on a building across the street, November 2023.
Gabrielle Fonrouge | CNBC

The closed store was sandwiched between a car dealership and a freeway in an area that locals said had light foot traffic and had attracted a homeless encampment during the Covid pandemic. In comparison, Target’s Union Square location is in the heart of San Francisco’s bustling tourist and shopping district. 

Portland 

Target closed three stores in the city of Portland that saw less crime than locations it kept open. 
For example, the Target on Southeast Washington Street, which remains open, had 718 reported incidents between January 2021 and the end of September 2023, which is more than all three closed stores saw combined over the same time period, according to police records.
One of the locations, a small-format store on Northeast Halsey Street, was open for less than three years before it was closed.

Based on available data in Portland, CNBC’s findings echo some area crime statistics.
In the Hazelwood neighborhood, where Target’s store on Southeast Washington Street remains open, reported larcenies are up 5% in 2023 between Jan. 1 and the end of October, compared with the same period a year ago. In Hollywood and Richmond, where Target closed stores, reported larcenies were down 37% and 8%, respectively, for the same time period.
However, in downtown Portland, where Target’s store on Southwest Morrison Street was closed, reported larcenies were up 13% for that time period.

Seattle 

Target closed two stores in Seattle, both small-format locations that saw fewer crimes than the nearest Target stores.
For example, the shuttered Targets on Northwest Market Street and University Way Northeast had 235 and 395 reported incidents, respectively, between January 2021 and the end of September 2023. In comparison, two locations about five miles away that remain open, on Second Avenue and Northeast Northgate Way, saw 878 and 901 reported incidents, respectively, during the same time period.

In some cases, the data also matches local crime statistics. Between Jan. 1, 2021, and Oct. 31, 2023, reported larcenies were 30% lower in the area of Target’s Northwest Market Street location and 33% lower in the area of the University Way store, both of which were closed, than in the area where Target’s Northeast Northgate Way store remains open.

New York City 

Target closed one store in New York City. The location was in East Harlem and housed within a larger shopping complex that borders the East River, about a 15-minute walk from the nearest subway station. 
It recorded at least 844 incidents between January 2021 and the end of September 2023, but the figures pale in comparison with those during the same time period at other Target stores dotted across the Big Apple. 

A store on Greenwich Street in Lower Manhattan saw 2,090 reported incidents, more than double the number in East Harlem in that time period. At another location, on Grand Street, 1,628 incidents were recorded. 
The locations are vastly different. The two Lower Manhattan locations are in busier areas with more foot traffic and higher median income levels. In the ZIP code where the East Harlem store was located, the median income is $36,989, compared with more than $250,000 in the area around the Greenwich Street store and $43,362 in the area around the Grand Street location, U.S. Census data shows.
Target closed the East Harlem location — because of crime and safety, it said — at the same time it planned to open a store about a mile and a half away on West 125th Street in Harlem. Crime trends are worse in the area where the new store is opening, according to police records.

Target’s New York City store in East Harlem was housed within a larger shopping complex.
Gabrielle Fonrouge | CNBC

At the time Target announced the East Harlem closure, reported petty theft incidents were down 2.5% between Jan. 1 and Sept. 24, 2023, in the area where the East Harlem store was and up 9% during the same period in the area where the proposed store will be, compared with the same period a year ago. Target did not comment on the discrepancy.
— Graphics by CNBC’s Gabriel Cortes More

State of Freight

Carriers are re-routing vessels as a direct result of more than a dozen Houthi attacks in the Red Sea since the start of the Israel-Hamas war in October.
Ocean carriers and companies are in a race to explain to U.S. shippers the delays they could be facing.
U.S. Defense Secretary Lloyd Austin announced the formation of an international task force to address the security issues.

Loaded containers stacked on top of a cargo ship sailing in a canal on Janvier 20, 2017 in Suez Canal, Red sea, Egypt. 
Camille Delbos | Corbis News | Getty Images

So far, shippers have diverted about more than $30 billion worth of cargo away from the Red Sea as they face the threat of attacks from Houthi militants in Yemen.
Carriers are re-routing vessels as a direct result of 15 strikes in the Middle Eastern body of water since the start of the Israel-Hamas war in October. U.S. Defense Secretary Lloyd Austin announced the formation of an international task force to address security issues.

Details of the U.S.-led operation are yet to be confirmed. Dan Mueller lead analyst for the Middle Eastern Region for maritime security firm Ambrey said they continue to advise clients to continue with their Best Management Practices by thoroughly checking their vessel fleet’s current and past affiliations, the vessel’s Transit Risk Assessment, preparating the crew for emergencies and other safety measures.
At the moment, there are 57 container vessels sailing the long way around Africa instead of cutting through the Red Sea and the Suez Canal, according to Paolo Montrone, senior vice president and global head of trade sea logistics at Kuehne+Nagel.
“That number will increase as more will take this routing,” Montrone told CNBC. “The total container capacity of these vessels is 700,000 twenty-foot equivalent units (TEUs.)” Containers come in both 20-foot and 40-foot units.
The approximate value of those containers is $50,000, according to Antonella Teodoro, senior consultant for MDS Transmodal. That adds up to $35 billion in total cargo being diverted.
Ocean carriers and companies are in a race to explain to U.S. shippers the delays they could be facing as a result of the Houthi threat. The Houthis, a militant group backed by Iran, have expressed solidarity with Palestinian extremist organization Hamas in its war against Israel. Earlier Tuesday, U.S. Defense Secretary Lloyd Austin announced the formation of an international task force to address the security issues.

Carriers could deploy additional vessels since fleet capacity has grown by more than 20% in the last 12 months, according to Teodoro.
“Demand is expected to remain flat so there is capacity available to keep ocean carrier lines on time and pick up the containers once bound on these diverted vessels,” Teodoro told CNBC.
“Ocean carriers could also start making adjustments to their networks in addition to the diversions,” said Teodoro.”But, diversions/adjustments will require time and won’t come free, understandable. One can hope we won’t see the high rates seen in the recent past.”
Teodoro stressed the disruptions at both the Suez and Panama canals highlight the importance of an international authority monitoring how capacity is offered and at what price if we want a more resilient global supply chain. The Panama Canal, located in Central America, has struggled with low water levels for months.
Port authorities are expecting congestion as a result of updated arrival times and planning needs, according to Montrone.
“The situation is very volatile and the reconfiguration of these networks is very complex, so we can expect a certain level of disruption,” Montrone told CNBC. “In Asia, the lack of empty equipment (containers) will become a potential issue as the repositioning of empty containers into demand areas will take 10-20 days longer.”
Maersk, one of the shippers who paused operations in the Red Sea, expects two to four weeks of delays, according to CEO Vincent Clerc.
“Europe is more dependent on the Suez,” Clerc told CNBC’s “Market Movers.” “The delays will be more pronounced in Europe.”

For U.S. shippers, there are a variety of ways for trade to move, either from Asia to the West Coast ports or traversing through the Panama Canal to the Gulf and East Coast ports. Delays from the Panama Canal had shippers opting to book vessels using the Suez Canal as a way to get to the East Coast instead.
SEKO Logistics told CNBC it’s telling U.S. clients to anticipate delays of approximately 10-14 days for East Coast cargo, with potential further delays at ports if a lot of ships arrive at similar times outside of their respective berthing windows.
A diversion around the Cape of Good Hope at Africa’s southernmost point adds around 3,400 nautical miles, or approximately 14 extra days, depending on speed, according to Matthew Burgess, VP of global ocean services at C.H. Robinson. 
“Keep in mind, pausing transit and elongating it could put a strain on capacity globally, not just in the Red Sea, and will then lead to carriers imposing rate increases and War Risk Surcharges,” Burgess said. “Our team is in constant contact with ocean carriers and customers whose freight is or may be impacted. Contingency plans are crucial during these types of disruptions. It’s not just thinking through shifted or delayed ocean freight, we’re also strategizing what that means down the line for inland movement, inventory and manufacturing needs.”
ITS Logistics, meanwhile, is telling U.S. clients that the situation in the Red Sea and the Suez Canal is developing quickly, and that it could take weeks, if not months, to be resolved, according to Paul Brashier, vice president of drayage and intermodal for the company.
“We are recommending that shippers shipping goods from Southeast Asia to the US that were using the Suez Canal to consider booking the Trans-Pacific route to the U.S. West Coast,” said Brashier.
Brashier said the lower rates and transit are ideal and any eastbound containers could be moved by rail or truck.
OL-USA, likewise, is advising clients to utilize a multi-pronged approach for their shipments. 
“This will involve using all 3 coasts to capture as much vessel space as required, as well as using rail and truck capacity,” said Alan Baer, CEO of OL-USA. “Shippers should also be looking to book ocean freight space from now through early February to allow for possible extended transit times.”
Logistics executives are also worried about a rapid increase in freight rates.
In June 2022, Congress passed the Ocean Shipping Reform Act, giving the Federal Maritime Commission (FMC) the tools it needed to clamp down on ocean carriers’ shipping price hikes.
“The FMC will monitor the rates very closely and see if there are any violations of the Shipping Act which prevents unreasonable behavior by the ocean carriers,” FMC Chairman Dan Maffei told CNBC. More

Until the Suez Canal opened in 1869, merchant ships in the Red Sea mostly carried coffee, spices and slaves. The waterway changed everything. So far in 2023 around 24,000 vessels have plied the passage, accounting for some 10% of global seaborne trade by volume, according to Clarksons, a shipbroker. That includes 20% of the world’s container traffic, nearly 10% of seaborne oil and 8% of liquefied natural gas.So missile and drone attacks by Houthi militants in Yemen on ships passing through the narrow strait of Bab al-Mandab, which connects the Red Sea to the Gulf of Aden, apparently in support of Palestinians in Gaza, looks like the latest blow to the shipping industry—and to its customers. It has struck just as both groups try to return to normality after the upheavals of the pandemic and, more recently, troubles that include a drought that has restricted large vessels from passing through the Panama Canal for several months.A dozen Houthi attacks in recent weeks and four more on December 18th pose an unacceptable danger to shipping. Container firms accounting for some 95% of the capacity that usually crosses Suez, including giants like Swiss-based msc and Denmark’s Maersk, have suspended services in the area. A few energy firms, such as bp and Equinor, have also temporarily stopped their ships from using the canal. As when the route was disrupted in 2021 after Ever Given, a giant container ship, ran aground and blocked the canal for six days, shipping companies are already rerouting vessels around Africa. This will extend journeys from around 31 to 40 days between Asia and Northern Europe, reckons Clarksons. Unless the route can safely reopen, delays and the inevitable disruption at ports as vessels arrive out of schedule will create disorder in the coming months. Still, this Suez crisis will not “put a cork in global trade”, says Lars Jensen of Vespucci Maritime, a consultancy. The reason for cautious optimism has to do with the shipping industry’s remorseless cyclicality. Unlike during the Ever Given fiasco, supply chains are not currently under immense strain. Back then cuts to capacity coupled with a surge in spending by locked-down consumers had sent shipping rates surging to astronomical levels. A global index from Drewry, another consultancy, hit over $10,000 per standard container. On some routes, spot rates surpassed $20,000. That helped push shipping firms’ combined net profits in 2022 to $215bn, according to the John McCown Container Report, an industry compendium, compared with cumulative loss of $8.5bn in 2016-19.image: The EconomistThe shipping firms’ customary response to such price signals is to order new vessels. Those are starting to arrive. Though demand has remained flat over the past year or two, the global fleet’s capacity will swell by 9% this year and another 11% in 2024, according to ing, a bank. Already, the industry’s profits are forecast to plunge by 80% in 2023. With capacity to spare, running longer routes should not cause the disruption seen at the height of covid-19. Drewry’s index is now becalmed at $1,500 or so (see chart). Rates could double as a result of the Red Sea turmoil, reckons Peter Sand at Xeneta, a freight-data firm. But they will probably stay well below their pandemic peaks—and so will shipping companies’ profits. ■ More

Media and most telecommunications companies still don’t have a strong growth narrative for 2024.
Interest rate and regulatory concerns may curb transformative deals until 2025.
Next year could be make-or-break for legacy media as it either proves its sustainability or its vulnerability.

The Grinch
Source: Universal Studios 

It’s human nature for a new year to bring optimism and hope.
For executives, investors and employees in the entertainment and telecommunications industries, 2024 is set to disappoint.

Maybe that’s too grinchy. Some things will get better. The actors’ and writers’ strikes are over. The 2024 U.S. presidential election should help boost advertising dollars as global TV ad revenue is on pace to decline 18% this year, according to media investment firm GroupM.
Companies such as Warner Bros. Discovery and Disney cut thousands of jobs and dramatically slashed content costs to boost free cash flow and pay down debt. That could give investors a reason to be more sanguine about their business prospects next year. Disney recently restored its dividend for early 2024 after suspending it for more than three years.
Still, legacy media companies including Disney, Paramount Global, Warner Bros. Discovery and Comcast’s NBCUniversal are trying to figure out what investors want since pulling back on a narrative of subscription streaming video growth that dominated 2020 and 2021. Warner Bros. Discovery and Comcast have outperformed the S&P 500 in 2023, though just barely. Disney and Paramount Global have underperformed.

The overriding narrative for 2024 appears to be one of uncertainty on three key fronts: interest rates, regulatory policy and overall growth prospects. The industry should have more clarity in 2025 on all three topics to propel it forward, said Corey Martin, managing partner at entertainment law firm Granderson Des Rochers. Next year will probably be defined by preparation for action rather than actual transformation, Martin said.
“2024 is probably going to be a year of sustained uncertainty,” said Martin. “It’s really a continuation of a pattern we’ve seen since the midpoint of 2022.”

The Jerome Powell factor

U.S. Federal Reserve Chair Jerome Powell attends a press conference in Washington, D.C., the United States, on Dec. 13, 2023.
Liu Jie | Xinhua News Agency | Getty Images

After the benchmark 10-year Treasury yield hit a 16-year high in October, rates have come down as the Federal Reserve said it’s planning for multiple cuts to come in 2024 and beyond. The Fed’s overnight borrowing rate is at between 5.25% and 5.5% — significantly elevated from where rates had been since the financial crisis of 2008.
Rate cuts next year could push transformational deal-making to 2025. If media or technology companies want to acquire large assets and don’t have the cash on hand, they’ll want to wait for cheaper money.
“I had lunch in late November with the CEO of a major studio, and what he expressed is uncertainty around operating in this monetary policy environment,” said Martin. “What is the cost of capital? Am I better served punting until 2025 where I have more clarity when interest rates come down or remain static?” 
Still, major deals could be announced in 2024 with an assumption that the process of closing them will take 12 to 18 months. By that time, companies may bet on interest rates falling to levels more in line with the past 10 years.

Shari Redstone, chair of Paramount Global, attends the Allen & Co. Media and Technology Conference in Sun Valley, Idaho, on Tuesday, July 11, 2023.
David A. Grogan | CNBC

Shari Redstone has held talks for the last few months to potentially sell National Amusements, the controlling holding company of Paramount Global, according to people familiar with the matter who declined to be identified because the discussions are private. If that deal occurs in 2024, it could kick off a wave of strategic transactions, including selling dying cable networks to private equity firms, throughout the media and entertainment industry regardless of the macroeconomic environment.
National Amusements declined to comment.

Biden, Trump and regulatory frustration

Three CEOs of major media and telecommunications companies privately told CNBC they are hoping for new regulatory policy — perhaps in the form of a presidential administration change — to make needed consolidation easier. Existing rules that cap regional broadcast station ownership prevent or deter companies such as Sinclair, Tegna, Nexstar and Gray Television from merging.
There’s additional concern Federal Trade Commission Chair Lina Khan or any other regulatory leaders appointed by President Joe Biden in 2024 and beyond won’t look kindly on the combination of cable and wireless assets. While companies in Europe own both, cable ownership is still separate from wireless network operators in the U.S. Bringing companies such as Comcast and Charter together with either AT&T, Verizon or T-Mobile could increase corporate pricing power and eliminate competition, which Khan would likely see as anti-competitive.
There’s also the ongoing dance between NBCUniversal, Warner Bros. Discovery and Paramount Global. Many media watchers assume that two of those three companies could merge, leaving the third without a dance partner. How regulators would view a combination of those assets is still to be determined. A deal between NBCUniversal and Paramount Global, which would put together broadcast networks CBS and NBC under one corporate roof, seems like a regulatory nonstarter without divesting one of the networks.
“There will be a final round of consolidation in the industry,” said John Harrison, EY Americas media and entertainment leader. “Structurally, it’s not sound in terms of the economics for streaming. Companies need to get their cost structures right as linear TV winds down. But there’s a hesitancy to pull the trigger on anything massive when you know how fast the disruption is taking place, and you’re looking at an 18- to 24-month-long review process to get a deal approved.”

Brian Roberts, chief executive officer of Comcast, arrives for the annual Allen & Company Sun Valley Conference, July 9, 2019 in Sun Valley, Idaho.
Drew Angerer | Getty Images

If the two presidential nominees are Biden and former President Donald Trump, relief may not be coming. Trump’s Department of Justice blocked AT&T’s acquisition of Time Warner before a judge overturned the decision. Trump has also been publicly antagonistic toward NBC and parent company Comcast, calling CEO Brian Roberts a “slimeball” as recently as last month in a post on the ex-president’s social media platform Truth Social.
Ironically, that could make some companies less bothered by regulatory issues. If executives feel both Republican and Democratic administrations may be obstacles, corporate boards could decide to approve moving forward with transformational deals sooner rather than later. If a deal is blocked, they can try their luck in court.

Where’s the growth?

Since the “Great Netflix Correction” of 2022, there isn’t a unifying growth narrative for media and entertainment companies. Cable operator stocks continue to move up and down on home broadband additions or subtractions — a concerning trend with growth stalling in 2023. AT&T and Verizon shares have been stuck in neutral for more than a decade, even as they’ve gained fixed wireless customers this year and likely will add more next year.
Traditional TV subscribers again dropped by the millions this year. As eyeballs diminish, advertising dollars will also decline. Next year will also likely be another year of industry losses for most major streaming services. Disney, Paramount Global and NBCUniversal have all pegged 2025 as their flagship streaming services’ first full year of profitability.

President and C.E.O. of Warner Bros. Discovery David Zaslav speaks during the New York Times annual DealBook summit on November 29, 2023 in New York City.
Michael M. Santiago | Getty Images

Media executives have spent 2023 right-sizing their businesses and pulling back on content spending to accelerate profitability paths for their flagship streaming services. Warner Bros. Discovery Chief Executive David Zaslav had his pay package altered so that his bonus is tied to his company’s free cash flow generation and debt payback. Disney announced last month its cost savings for the year will be $7.5 billion — $2 billion more than its previous target of $5.5 billion.
But the industry remains stuck at depressed valuations relative to two or three years ago. Disney is preparing for a proxy battle with activist investor Nelson Peltz and former CFO Jay Rasulo, who plan to campaign for board seats based on Disney’s poor performance relative to the S&P 500.
“The [Disney] board and CEO [Bob Iger] appear to have no conviction that things will get better,” Peltz’s Trian Fund Management said in a statement Thursday.
Beyond financial metrics, several executives privately acknowledged morale has become an increasing concern at legacy media companies. When uncertainty is so high, with few clear growth prospects to generate excitement and layoffs rampant, it’s hard to generate cultures of prosperity and retain top talent. One executive noted he’s increasingly hearing from peers that running media and entertainment companies just isn’t as fun as it was five or 10 years ago.
2024 should be an inflection year for the industry. Either conditions will improve or they won’t. If they don’t, expect fireworks in 2025.
Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC.
WATCH: It’s very hard to see any strategic buyers for Paramount, says LightShed’s Rich Greenfield More

State of Freight

There could be more trade disruptions to come as Iran-backed Houthi militants strike ships in the Red Sea.
Several major shipping lines have suspended their services through the Red Sea as more than a dozen vessels have been attacked since the start of the Israel-Hamas war.
The U.S. and other countries have banded together in an effort to protect the vessels.

A container ship sails through the new section of the Suez Canal in the Egyptian port city of Ismailia, 135 kms northeast of the capital Cairo on October 10, 2019.
Khaled Desouki | AFP | Getty Images

Attacks by Iran-backed Houthi militants on ships in the Red Sea have already rocked global trade. And there could be more disruptions and price increases to come for shipments of goods and fuel.
Several major shipping lines and oil transporters have suspended their services through the Red Sea as more than a dozen vessels have come under attack since the start of the Israel-Hamas war in early October.

Help appears to be on the way. U.S. Defense Secretary Lloyd Austin, who is visiting Bahrain, said American forces along with the United Kingdom, Bahrain, Canada, France, Italy, Netherlands, Norway, Seychelles and Spain would create a new force to protect ships in the region.
MSC, Maersk, Hapag Lloyd, CMA CGM, Yang Ming Marine Transport and Evergreen have all said they will be diverting all scheduled journeys immediately to secure the safety of their seafarers and vessels. Collectively, these ocean carriers represent around 60% of global trade.
Evergreen also said it would temporarily stop accepting any Israel-bound cargo, suspending its shipping service to Israel. Orient Overseas Container Line (OOCL), which is a part of Chinese-owned COSCO Shipping Group, has also stopped accepting Israeli cargo, citing operational issues.
“About 30% of Israeli imports come through the Red Sea on container vessels that are booked two to three months in advance for consumer or other products, meaning that if the voyage will now be extended, products with a shelf life of two to three months will not be worthwhile importing from the Far East,” said Yoni Essakov, who sits on the executive committee of the Israeli Chamber of Shipping.
“Importers will need to increase stock due to the uncertainty and pay much more and others will lose out on their markets as time to market is not competitive,” Essakov added.

On Monday, oil giant BP said it would also pause shipping activity in the Red Sea as the Yemen-based Houthis continue their attacks.

Cargo ships are seen at Israel’s Haifa commercial shipping port in the Mediterranean Sea on December 13, 2023.
Mati Milstein | Nurphoto | Getty Images

“The safety and security of our people and those working on our behalf is BP’s priority. In light of the deteriorating security situation for shipping in the Red Sea, BP has decided to temporarily pause all transits through the Red Sea,” the company said in a statement to CNBC. “We will keep this precautionary pause under ongoing review, subject to circumstances as they evolve in the region.”  
Oil tanker group Frontline also said it is avoiding the Red Sea.
The attacks have already pushed ocean freight costs higher. Since the beginning of the Israel-Hamas war, the Asia-U.S. East Coast prices climbed 5% to $2,497 per 40-foot container, according to the Freightos. It could get even more expensive as major companies avoid the Suez Canal, which feeds into the Red Sea, and opt instead to go around Africa to get to the Indian Ocean.
Doing so adds up to 14 days to a shipping route, incurring higher fuel costs. And since ships take a longer time to get to their destinations, the workaround results in a perceived “vessel capacity crunch.” Delays in container and commodity deliveries are inevitable.
Container shipping represents nearly a third of all global shipping, with the estimated value of goods transported amounting to $1 trillion, according to Michael Aldwell, executive vice president of sea logistics at Kuehne+Nagel.
“Approximately 19,000 ships navigate through the Suez Canal annually,” Aldwell said. “The extended time spent on the water is anticipated to absorb 20% of the global fleet capacity, leading to potential delays in the availability of shipping resources. 
There will also be delays in returning empty containers to Asia, which will only add to supply chain woes, he added.
Moody’s highlighted the delays in a note to clients.

A mock drone is displayed at a square on December 07, 2023 in Sana’a, Yemen.
Mohammed Hamoud | Getty Images

“This situation, if it extends beyond a few days, will have credit positive implications for both the container shipping industry and for tanker and dry bulk markets,” wrote Daniel Harlid, senior credit officer at Moody’s. “But it also raises the risk of further disruption to supply chains.”
Insurers are also shifting their stance, which could result in higher costs passed on to shippers and consumers. The Joint War Committee (JWC), which includes syndicate members from the Lloyd’s Market Association and representatives from the London insurance company market, said it is widening its high-risk zone to 18 degrees north from 15 degrees north.
“The Red Sea Listed Area has been extended by 3 degrees north to factor in missile range from Yemen, reflecting a dynamic and evolving situation where ship owners have already shown their awareness of developments with some significant re-routing announced,” Neil Roberts, head of marine and aviation at Lloyd’s Market Association, said in an email.
The Red Sea and the Gulf of Aden, to the south of Yemen, are already listed by the JWC, as both areas have required notification of voyages since 2009. The decision to expand the high-risk area influences underwriters’ considerations over insurance premiums. 
The route shifts will also likely hurt Egypt’s already-struggling economy, which has already suffered a hit to tourism due to the Israel-Hamas war. Egypt owns, operates and maintains the Suez Canal. The Suez Canal Authority said it had generated a record $9.4 billion during the 2022-23 fiscal year.
–CNBC’s Rebecca Picciotto contributed to this report. More

Shares of VF Corp. tumbled after the company said it suffered a cybersecurity breach.
The attack is expected to have a material effect on its business.
It’s a major hit as the company, which owns The North Face and Vans, gears up for the holiday rush.

A Vans store is seen in Hong Kong.
Budrul Chukrut | LightRocket | Getty Images

Shares of The North Face and Vans owner VF Corp. tumbled Monday after the company reported that a hack had affected its ability to fulfill some orders ahead of the holidays.
The company said hackers encrypted “some” systems and made off with personal data. Those are some hallmarks of ransomware, where attackers try to extort companies in exchange for hefty payment. VF Corp. declined to comment on whether the incident was a ransomware attack.

The stock closed down more than 7% Monday.
VF Corp. announced the incident on the same day that the U.S. Securities and Exchange Commission’s new cyber disclosure rules took effect. Those regulations mandate that companies report “material cybersecurity incidents” to their investors within four days of determining that a hack would have an effect on their bottom lines. VF Corp. first identified hackers in its system on Dec. 13, meaning it took relatively little time for the company to identify the threat as material.
The attack is expected to hit the company’s operations in the lead up to the critical holiday shopping period. The company said the breach has affected its ability to fulfill orders, but customers will still be able to place them online.
The full scope of the attack is still not known, and it will likely continue to have a material impact until recovery efforts are complete, the company said.
The new SEC rules are designed to give investors a clearer picture of how attacks can harm businesses. When casino firm Caesars Entertainment was breached earlier this year, for example, the company quietly paid a $15 million ransom, sources previously told CNBC. Only after MGM Resorts was hit by the same attacker did Caesars disclose that it had been affected.

Under the new disclosure obligations, Caesars likely would have had to report the hack and the payment much earlier. Regulators and law enforcement strongly discourage companies from paying ransoms. But given the debilitating effects that cyber disruptions can have, many companies do so anyway. 
VF Corp. is the latest major company to be hit a by cyberattack that disrupted company operations. In addition to Caesars and MGM, Clorox was hit by a breach that prevented the company from keeping its items on store shelves earlier this year. More