Market conditions – Historically the calendar weeks of 34-37 experience some of the strongest liftings on the TPEB trade. When reported, August imports results should reflect the best numbers since October 2022. Procuring capacity has been relatively easy, except for shipments into Southern California, where simply due to aggressive blank sailings into the sub-trade in July and August, things have been more challenging. As we move into September capacity will continue to outpace demand in the trade. With no visible market disruptors on the horizon, all eyes turn towards the ocean carriers and how they will manage capacity into the fourth quarter.
Market rates – After the latest September 1st general rate increases on the trade, FAK rates have more than likely hit their high-water marks for 2023. As peak season volumes have already started to wane, ocean carriers will face market pressure to protect utilization levels and expectations are for rates to migrate back to pre-summer levels before too long.
Most expect that future general rate increases will face an uphill battle and struggle to materialize for the remainder of 2023, however that doesn’t mean market rates will collapse for an extended period of time. Ocean carriers have less competition then in years past and will take capacity cutting actions to push rates up. . We anticipate most of the downward pressure on rates to develop on the USEC sub-trade and would expect the rate gap of $1,000 per 40’ container between USWC and USEC base port rates to fall and remain below this threshold into the 4th quarter.
Peak Season Surcharges – Ocean carriers have implemented peak season surcharges at varying levels since August though some have opted to wait for clearer market direction and are postponing it until September 1st. Carriers that implemented the surcharge early are currently offering mitigation, while carriers that waited may be pressured to forgo PSS’s all together as the market already is focusing on the weak post peak volumes which don’t look promising for the short-term. We would expect ocean carriers to start pulling back on existing peak season surcharges before Golden Week holiday in China.
Inventory to Sales Return to Pre-Pandemic Levels – The U.S. consumer market has taken longer than expected to absorb the historically high inventory levels experienced 2022. However, the good news and light at the end of the tunnel is that inventory to sales ratios are returning to their 1.4 month historical averages. Unfortunately, two sectors will experience a continuing lag. Furniture and apparel inventories are still above the average and will not normalize until 2024. When in 2024, is the question, with some analysts’ projecting improvement by 1st quarter and others more pessimistic predicting a 2nd half 2024 normalization due to high interest rates and extremely high consumer good costs.