Market Conditions – Are current market conditions indicating another calm before the storm situation? The slowing of purchase orders in the 1st quarter combined with a traditional slack-season cargo flow might signal to some that we are on the road to improving import supply chain conditions. However, as often experienced in international shipping, potential developing disruptions may sour any positive momentum.
The recent Shanghai lockdowns have significantly impacted container departures out of Shanghai and surrounding ports. Many origins in Central and Northern China have seen volumes drop off by as much as 20%-30%, with Shanghai closer to a 60% reduction. Do we run into a situation where market volumes bounce back after the slack period at the same time Shanghai backlog starts to clear? Further complicating supply chains stability this shipping season, is the expiration of current ILWU contract on July 1st. If history is any indication, the potential for further disruption exists due to labor slow down which would only add to the ongoing congestion chaos plaguing West Coast ports.
An additional wild card is consumer spending. Does increasing inflation along with increased spending on services significantly impact consumer goods demand? It is likely we will see some rebalancing take place this year however the supply chain infrastructure is so fragile that any shipping disruptions have the potential to create chaos in the market, stay tuned.
Market Rates – Downward pressure on rates will continue into May as the domino effect from the Shanghai lockdown plays out. As ocean carriers omit Shanghai, additional allocation opportunities for other regions to gain allocation has increased over the last few weeks. Countries such as Thailand, Indonesia and Malaysia that rely on transshipment ports are welcoming the additional capacity. The additional capacity has increased the level of FAK capacity being released in the marketplace. Finally, some good news for importers!
That being said, the import market is only slowing coming out of slack season and with rate levels currently in the high 4-digit to USWC and lower 5-digit range to USEC and USGULF, we can easily see rates spike once again with all the red flags in the marketplace.
East Coast Port Congestion Worsens – As many shippers increase their routings of containerized shipments to USEC ports the resulting terminal congestion has followed close behind. This week approximately forty container vessels are at anchor waiting berth up and down the US East Coast, with the majority waiting at anchor outside Charleston and Savannah ports. NY/NJ ports are experiencing historically high queue levels with approximately ten container vessels at anchor waiting to berth. As we head through the shipping season, we should expect little relief on East Coast congestion and once the rhetoric of the labor negotiation heats up, it is almost guarantee that East Coast vessels will be coming in at capacity.
April Blank Sailings Skyrocket – Due to the Shanghai lockdown, ocean carriers will omit Shanghai on approximately fifteen services to the US West Coast and sixteen services to USEC and GULF. The majority of other main sourcing origins such Ningbo, Xiamen and Yantian also have a considerable number of blank sailings that are more related to vessel delays caused by US port congestion. The impact on capacity is somewhat muted due to slack season and importers sitting on higher-than-average amounts of inventory. If and when market volumes rebound, the elevated number of blank sailings will potentially cause market rates to trend higher.
Last Mile Accessorial Pain Points Continue – Importers continue to struggle with inflated costs directly associated with the US supply chain infrastructure shortfalls. Ocean carriers have been somewhat reasonable on mitigating per-diem charges when terminals are restricting empty container returns. However, the additional cost being levied by chassis providers and truckers for empty container storage is another story. These associated costs are absorbed by the importer which has been a painful pill to swallow.
We have also seen an uptick on requests by ocean carriers for empty returns off-dock. This again is increasing costs as importers are forced to accept the additional cost levied by the dray carrier, mainly for wait times as most of the locations are close to the major port complexes. Bottom line, these accessorial costs are not going away anytime soon, importers will need to factor these hidden charges into their landed costs per container for the 2022 shipping season.
For over 70 years, Laufer Group International Ltd. has been helping customers improve the way they handle their logistics. To see how we can help, or for any questions, contact Brian Martorano, National Director of Business Development, Ocean Import or your local sales representative.