Market Conditions – As market leaders try and predict future surge levels due to the Shanghai Covid lockdowns, it seems likely that any potential surge will coincide with ramp up of back-to-school and year-end holiday seasonal consumer products. Most importers are unwilling to tempt fate waiting to place orders on products with insufficient inventory levels in the event that consumer spending fails to taper off which many expect to occur as inflation continues to rise. Certainly no one has a crystal ball on how this shipping season will play out, however, we all know global supply chains continue to skate on thin ice and any market disruption will add more than enough weight to cause a fracture.
There are approximately 85 vessels facing berthing delays into Southern California. Backups should slowly continue to recover before any form of summer surge ahead of the 4th of July holiday. East Coast port congestion continues to deteriorate and is not expected to improve anytime soon as ocean carriers increased capacity to East Coast ports by double digits over the past year to meet demand. The entire industry is also closely watching the infamous ILWU/PMA labor negotiations that will get underway next week. Early expectations are on a deal getting done without any significant disruption, however until negotiations get underway, it’s simply speculation at this juncture.
Market Rates – Downward pressure on market rates has leveled off after a few weeks of steady decline, especially on rates to the USWC. That being said, market rates in general are still extremely high for slack season with East Coast rates in the low 5-digit range, Gulf Coast rates still averaging in the mid 5-digits, West Coast rates are averaging anywhere from $9k-$11k depending on the origin port with origins such as Cambodia on the higher side of the average. USIPI rates have also leveled off and remain the higher side of guidance in the mid 5-digit range with Chicago experiencing the most downward pressure versus other USIPI destinations.
Ocean carriers have announced steep increases for May 15th in the $1,000 to $1,500 range per 40’ on FAK rates. However, we believe these increases were in anticipation of a Shanghai surge which seems unlikely to occur in the short-term. We would be surprised if this GRI is mitigated down significantly as carriers look to time the increase with the potential spike in bookings out of the world’s largest port by volume.
ILWU-PMA Labor Negotiations “First Shot Across Bow” – With formal negotiations set to begin next week, the PMA has “unintentionally” released a report on LGB/LAX port productivity analyzing automated versus conventional terminals. The report found that cargo handling at automated terminals was faster and terminal capacity increased while actually adding more longshore labor at the same time. ILWU Committee representative Frank De Leon quickly responded with comments such as the report was “self-serving” and an “insult to all workers who will see their jobs replaced by machines”. Let the negotiation games begin, even before the initial starting whistle!
Shanghai Lockdown to Ease Post May Day Holiday – As the lockdowns approach five weeks and Shanghai starts easing the restrictions after the May Day holiday, expectations are for Shanghai exports to slowly recover rather than a sudden surge. One contributing factor is the impact that the supply of raw materials and components have had on production due to trucking restrictions between districts and provinces. China’s zero tolerance policy will help prevent a sudden surge as lockdowns will slowly be lifted based on daily infection rate trends. It will take time for production to regain pre-lockdown levels. We do expect a surge to occur however most indications lean towards a less disruptive surge with high vessel utilization levels rather than a sudden lack of capacity situation in comparison to what the market experienced during the 2nd half of 2021.
Inventory Level Spike Impacts Infrastructure Recovery – Inventory levels continue to increase as depleted stock is replenished, however in speaking with many importers it’s quite evident that many warehouses are bursting through the roofs with inventory which is preventing a smooth “drop & pick” operation. The domino effect is evident as downstream bottlenecks will prevent resumption of fluidity at ocean terminals and rail yards.
The market has a short window before peak season volumes hit US ports. Unless wholesalers and retailers alike free up warehouse capacity the bottlenecks will continue and worsen before getting better in 2023 as many predict. Consumer spending remains strong and if continues through the short-term it’s possible some of the bottleneck risks can be mitigated before any import surge hits warehouses later this summer. Stay tuned…