Market Letters

Transpacific Eastbound Market Update – Week 2, 2023

Market conditions – As we turn the calendar to another year, our industry welcomes continuation of the improving market conditions experienced during the second half of 2022. Average global transit times are declining monthly as port congestion disappears, rail dwells decrease, and chassis availability improves. At the same time freight rates return to pre-pandemic levels for USWC port destination and only 5%-10% higher on USIPI and USEC ports compared to the same time period.

With Chinese New Year quickly approaching, many factories are winding down operations due to two major factors the most relevant being the lack of orders from U.S and Europe. The other main contributing factor is the impact of COVID which is directly influencing China’s available labor force.  We expect both factors to contribute to an extremely soft first quarter on the TPEB trade. A positive takeaway from the continued slump in TPEB trade volume is the expectation of a nearly full recovery from the landside issues that have plagued our market for the last twelve months.

Market rates – It’s all about supply and demand as we all know. November and December import numbers continued to reflect the sharp drop in U.S. consumer demand and spot market rates have slid accordingly. Freight rates have leveled off for the most part with US East Coast and rail destinations seeing continuing small percentage declines while U.S. West Coast levels have been maintaining with little additional movement since second half of December.

Rate levels are at or near the bottom of the trough and the big question is how long they will remain at these levels.  It seems likely that ocean carriers will continue to introduce additional blank sailings and temporary service suspensions through the remainder of the first quarter to avoid further rate declines.  Ocean carriers are flush with cash and unlikely to drastically reduce capacity to manufacturer rate increases in the short-term and risk drawing attention from government agencies. Shippers will have to navigate fewer available sailings and potential delays for this reason, however freight rates should remain favorable for the foreseeable future.

Pre-CNY Container Volume Doesn’t Materialize – Very few analysts were expecting a large uptick in container volumes before CNY, however with ocean carriers removing approximately 15% of total TPEB market capacity, expectations had been for rates to stabilize or even increase slightly.  This hasn’t been the case as rates tumbled in November and December and only recently started to stabilize.  It’s likely volumes will not rebound until the spring when back to school shipments start up in earnest.

2023 container volume forecast revises lower through 1st half – Retailer import forecasts were revised lower according to the NRF (National Retail Federation) with double digit percentage drops versus earlier projections of mid-high single digit percentages.  Imports in March are expected to decline by nearly 25% versus a forecast of 18% a little over a month ago. NRF is now expecting retailer imports not to pick back up until May. The jury is still out, however, it’s a reasonable expectation that inventory levels have dropped following post-holiday sales and by spring, purchase orders to increase with volumes lagging a couple of months behind.  It is quite possible the market will experience a “traditional peak season” in 2023 with volumes spiking in the 3rd quarter, only time will tell.

Port Congestion Disappearing Act – The long vessel queues experienced in 2022 are now in the rearview mirror with West Coast ports reporting zero vessels idling and East Coast ports, primarily Savannah and Houston are down to single digits with average delay of less than five days.  Any lingering port congestion should clear over the next couple of weeks due to the twelve temporary service suspensions in the market combined with poor vessel utilization levels.  Transit times will continue to improve and return to historical averages by the end of the first quarter - welcome news to the shipping industry for sure!

ILWU & PMA labor negotiation remains quiet – The chance of disruption increases the longer the ILWU works into 2023 without a contract even though primary stakeholders play down the likelihood of any labor issue.  The negotiations have been kept out of the public view, so the market is really in the dark about what to expect.

As 2023 container throughput volume forecast looks underwhelming, neither the ILWU nor the PMA holds the upper hand. Though the likelihood of disruption in the short-term seems low, it’s one storm cloud for 2023 that has potential to build dramatically or dissipate quietly. The industry eagerly awaits a resolution to this issue.

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