Global News Early peak season, mixed signals to test Asia-US rate strength

Patrick Fay, cofounder and CEO at forwarder BOC International, said some shippers have lowered their projections for imports due to a shift in consumer spending from merchandise to services such as dining out and travel.

“Inflation, [Federal Reserve] interest rate adjustments, stock market direction, and the [potentially] ominous fall COVID situation are all factors that will also have an influence on how the year will unfold,” Fay said.

The logistics director at a mid-size retailer said he is “adjusting” purchase orders with factories in Asia, which he defined as slowing down — but not canceling — orders until the direction of the economy becomes clearer. He sees a later peak season ahead, starting in late summer, “but it will be a short holiday season,” the importer, who asked not to be identified, told JOC.com

While some importers may be considering pulling back on purchase orders, it hasn’t been reflected in the bookings that freight forwarder Farrow is handling, said COO David Bennett.

“I’m not seeing it yet,” Bennett told JOC.com. “My sense is this is potentially a temporary softening unless inflation becomes a long-term trend.”

US imports from Asia increased 2.7 percent in January through April compared with a year ago, according to PIERS, a JOC.com sister product within S&P Global. Import volumes increased despite the normal softness experienced during the Lunar New Year in February. Interruptions in shipments from Shanghai during the COVID-19 lockdowns that began in March and for the most part ended last week also affected cargo volumes. But the fact that imports from Asia continued to grow indicates consumer demand is still strong, Bennett said. Spot rates have declined Spot rates have softened this spring, although they have not come crashing down, as would happen if the trade were entering a recession.

Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, attributes the decline in West Coast spot rates largely to the softer import volumes following the Lunar New Year. He added a cautionary note, however.

“But it is also clear to see that normal seasonality would imply that rate levels are to begin to increase in the coming weeks, if we are to see normal seasonality,” Murphy said in his most recent Sunday Spotlight newsletter.

Forwarders do not expect spot rates in the eastbound trans-Pacific to drop significantly going forward.
“Spot rates are drifting lower, but not in any panic fashion,” Kurt McElroy, executive vice president of Apex, said. “Carriers are capable of managing capacity against sustained volume softness and expect that we will continue to see elevated rates regardless of current volume uncertainty.”

In past years, during seasonal dips in cargo volumes, carriers managed capacity by canceling voyages, known as blank sailings. This year, however, vessel schedules have been so disrupted by congestion in Asian and US ports that the trans-Pacific has experienced “structural” blank sailings, meaning vessels were not in the Asian load ports when they were supposed to be. Vessel on-time performance from Asia to the US West and East coasts in April was only about 20 percent, according to Sea-Intel.

Caradonna said that due to current scheduled blank sailings, total capacity in the trans-Pacific has been reduced by about 20 percent, with some areas, such as the Pacific Northwest, experiencing a greater number of blank sailings because of congestion problems and delays in Vancouver.

On the other hand, the blanks that are scheduled for the coming weeks will give retailers an opportunity to reduce their inventory carryover, some of which dates back to peak season 2021 when some holiday shipments arrived late because of port congestion, said an industry consultant who was a logistics executive for national retailers. Weekly blanked capacity on the trans-Pacific has been trending in the range of 26 to 46 percent from late April through the first week of June, according to Project44. The freight visibility provider’s forecast says the range of weekly blanked capacity will narrow in the coming eight weeks in a range of 28 to 37 percent.

Also, some retailers shipped 2022 back-to-school and holiday season merchandise early this year to protect against supply chain disruptions they fear could arise when the current contract between waterfront employers and the International Longshore and Warehouse Union expires on July 1.

Finally, the capacity that is removed due to blank sailings by the large alliance carriers will be partially offset by the half-dozen new lines that entered the trans-Pacific last year. A second transportation consultant and former logistics director at national retailers said there are so many forces at work right now that he does not anticipate any significant rate movement up or down until the peak season environment becomes more clearly defined.

“I don’t see any race to the bottom in terms of rates, but the longer this [uncertainty] goes on the worse it gets for the carriers,” he said.