Market conditions – As widely reported in the press, big box and major wholesaler forecasts are well off earlier projections with market rates tumbling on most sub-trades since June in response. The lower costs on ocean freight are welcomed news to the market, however accessorial operational costs remain a major hurdle with no relief expected through the remainder of the year. Though sliding, import volumes, remain approximately 15% higher than pre-covid levels and most expect it will take several more months before domestic bottlenecks achieve noticeable improvements. We anticipate August and September import volumes to continue to reflect a downward trend. As we move through the remainder of Q3 and into Q4, it will be interesting to see how much the market has retracted from the surge that hit our shores earlier this year.
Market rates – Ocean carriers utilization levels are easing into the 80% range on most sub-trades, and we continue to see downward pressure on rates despite entering historically the busiest shipping period of the year where peak season surcharges are usually the discussion topic. West Coast port rates are certainly on the front line of the freight rate battle where ocean carriers compete against not only other alliance carriers but also the new market entrant charter carriers such as CUL, BAL, Transfar and others. Most of the new carriers do not offer U.S. inland service options and must fill their allocations with port business contributing to the deepest rate discounts currently found into Southern California ports.
East Coast rates and U.S. inland rail destination rates have also been declining albeit at a much slower pace due to ongoing port and rail congestion. We expect continuing downward pressure on rates through the remainder of the year into first quarter of 2023. Market rates will continue to trend back down to whatever the “new norm” will be, and we estimate that it will be in the $1k-$2k over pre-covid rate levels. How long it will take to arrive at the new norm is the question. For USWC port rates it might be sooner than later!
West Coast Port Congestion - Finally, some good news! Or is it? Depends on who you ask.
As widely reported in the news over the past few weeks, the number of container ships dwelling offshore waiting for berths at the ports of Los Angeles and Long Beach reached the lowest levels since late November 2020. “The last day we had eight container ships [waiting off Los Angeles/Long Beach] was Nov. 15, 2020, in the early days of the backup,” said Kip Louttit, executive director of the Marine Exchange of Southern California”.
Though the West Coast ocean view has improved, nearby landside rail conditions continue to paint a less rosy picture. In Los Angeles, there were over 30,000 containers waiting to load railcars earlier this week. Typically, that number would be closer to 9,000. Of that total, there were over 20,000 rail-bound containers dwelling nine or more days.
At the Port of Long Beach, there were still 15,000 containers dwelling nine days or more as of Monday. A number well below highs seen last year in July and October but still above levels recorded in the first quarter of this year.
The USWC port rail backlog is expected to only exacerbate an already strained and congested inland rail ramp situation especially in the Chicago, Memphis, and Kansas City markets.
NY-NJ’s Maher Terminal joins Port of Long Beach on reducing free time to encourage weekend gates – A tariff filing by Maher Terminal eliminates Saturdays and Sundays from the calculated free time allowance granted importers to pick up containers. The tariff change will be effective September 23rd whereas the Port of Long Beach is effective September 1st. Many ports around the U.S. have implemented similar weekend gates to ease the container backlog however without changing their tariff free time policies.
To be clear, shippers will have the same number of days (four) to pick up import containers, before demurrage accrual begins. The change will effectively reduce shipper’s free time if their distribution center is not open for deliveries on the weekend and/or their dray provider is limited on yard storage to hold the boxes. It remains to be seen if the move by both terminals improves container turn times as other factors weigh heavily on increasing weekend gate activity such as empty container return appointment availability and hours of operations. For example, Maher terminal Saturday gates are open until 3pm versus weekday gates that are open until 7pm.
East Coast Port Congestion – Current anchor dwell times in Savannah are approximately two weeks with forty vessels in the queue, Houston is around 20 vessels while NY/NJ ports are averaging 15-20 vessels at anchor with dwells averaging anywhere from 7-14 days. As port congestion continues to ease at West Coast ports the situation on the East Coast and Gulf have remained unchanged in recent weeks. East Coast ports are forecasting inbound volumes to decrease in September as ocean carrier utilization levels fall. However, it will take time for the backlog of vessels to dissipate as slow turn times on equipment continue to clog port infrastructure with over 200,000 empty containers in and around the port facilities alone.
Ocean carriers are being pressured by terminals to evacuate more empty containers which, by default will help ease the chassis shortage. Many importer’s dray carriers have no choice but to sit on empty equipment due to various issues such as lack of appointments for empty returns and dual transaction requirements. Regardless, if volumes do fall as anticipated the situation will gradually improve however it will take time for any sense of normalization to return.