Market Update Q2 2024: No.3

All,

Unwelcome news first in terms of rate increases and service disruptions in the far east trade - similar to previous times carriers continue to "right size" the trade and push the supply/demand ratio into one that favors them at least in the short term. Longer term projections regarding the overall growth of the US and Global economies are looking surprisingly good and a very robust demand in multiple commodities add further evidence that growth is happening and may well continue. The previous disruptions in the Red Sea and subsequent network adjustments have balanced out the excess space coming online in the TP trade. Additional space injected into the India/Middle East market rather than the Far East has resulted in rates for this trade lane staying static to lower as a contrast to the rising rates and service disruption in the Far East.As always, we are here to assist in any way we can and will be working with each of you case by case to manage these changes and mitigate any issues

Carrier Actions

  • May Cancellation of Space: Carriers have initiated cancellations of space on short notice. MSC has already cancelled space for the 3rd vessel of May. Similarly, WHL is set to cancel space for all containers not picked up for the 5/16 ETD vessel.
  • Weather in the Far East is also not helping with weather related delays at multiple ports - all together it is an average of one week delay on cargo whether due to vessel bunching, schedule changes, weather, schedule removals, slow steaming, alternate routing via the Cape of Good Hope or any combination of the aforementioned.
  • Restrictions on Changes: Carriers are now rejecting any changes for released space. This includes changes in size, destination, or even the switch from COC to SOC and vice versa.
  • Reduction in MQC of new contract year: Carriers are attempting to reduce the MQC in new contracts by up to 50%. This, coupled with the serious space situation anticipated in 2024, indicates that FAK rate levels are expected to surpass fixed rate levels for most of the time.
  • Reductions on weight - carriers are being much more stringent on weight restrictions and/or applying OWT penalties/surcharges on cargo exceeding the standard weight requirements. Particularly on RAIL cargo it has now been fairly consistent with restrictions and higher costs.
  • Base ports of LA/Houston/EC are less impacted.
  • Carriers are adjusting schedules and rolling bookings into subsequent weeks, skipping ports on occasion etc. - see attached for May projections on missing space for Far East
  • MSC has now brought back the "Diamond Service", which you may remember from COVID days - a "premium service" (additional $1000) - but many bookings for regular routings are being rejected and pushed toward Diamond Service if urgent space is needed. We expect other carriers to follow suit if this situation continues.

Soaring Trans-Pacific Spot Rates

  • A big spike in trans-Pacific spot rates that has taken hold starting in May is pushing US importers to re-assess their current supply chain and find a way to manage short terms spikes either through long term deals, delays in shipping or other options.
  • FAK rates sought by carriers are set to increase more than $1,000 per FEU based on May 1 & May 15 general rate increases (GRIs) filed last month by most liners in the eastbound trans-Pacific.

IMF Projections for Global Economic and Trade Growth

  • According to recent projections by the IMF, global economic resilience and steady growth are anticipated.
  • The IMF's April 2024 World Economic Outlook suggests a projected recovery in world trade growth by 3.0% in 2024 and 3.3% in 2025.
  • Varying growth trajectories are observed among both advanced and emerging economies.
  • Notably, China and India maintain their positions as the fastest-growing economies, while regional outlooks exhibit variability.
  • The IMF predicts a soft landing for the global economy but cautions about persisting risks from geopolitical tensions.

Strong Global Container Volume Growth in Early 2024

  • Recent research shows a strong global container volume growth, particularly in January and February 2024.
  • Year-on-year growth in Jan/Feb 2024 was more than 10% overall, 15% to WC/Los Angeles area.
  • The analysis compares growth rates to pre-pandemic levels in 2018 and 2019 to gauge market strength.
  • Strong container volume growth indicates increased demand for shipping services, potentially leading to higher capacity utilization, upward pressure on freight rates.
  • Volatility in monthly growth rates and uncertainty surrounding market strength may impact carrier strategies, such as capacity management - employing blank sailing and different pricing policies.

Analysis of US Consumer Spending Trends

  • A recent study conducted on US Consumer Spending data reveals noteworthy trends impacting containerized goods.
  • The study, covering data from January 2019 to February 2024 sourced from the US BEA, highlights a spike in spending during the pandemic, followed by partial stabilization.
  • Durable goods spending has notably increased, contrasting with stagnation in the growth of non-durable goods.
  • Major spending categories such as recreational goods and vehicles have experienced significant upticks.

Ports of LA and Long Beach busier this year and eyeing an early peak season

  • Container imports through the San Pedro Bay ports of Los Angeles and Long Beach are booming, with peak season volumes expected earlier than usual.
  • Rising consumer confidence and efforts to attract business back to the West Coast are cited as factors driving the surge in cargo moving through the ports.
  • A surge in empty containers being repositioned back to Asia further indicates increased demand on the transpacific route.
  • While concerns about handling additional volumes exist, port officials express confidence in their resilience, citing lessons learned from previous congestion periods.

Import Surge Leads to Rail Container Backlogs at LA-LB Terminals

  • Import surges at ports like Los Angeles and Long Beach may strain rail container capacities, affecting inland transportation networks.
  • Rail container backlogs are mounting at some marine terminals at the ports of Los Angeles and Long Beach amid a surge in imports from Asia.
  • The surge in imports from Asia is driving a sharp increase in eastbound intermodal train movements, exacerbating a chronic deficit of railcars returning westbound.
  • Yusen Terminals in Los Angeles is already holding twice its normal inventory of rail containers, indicating the scale of the backlog.
  • To prevent the backlog from interfering with cargo handling operations, some container volume is being drayed to a near-dock storage yard.
  • The utilization of near-dock storage space highlights the severity of the situation and the need for creative solutions to manage the backlog effectively.
  • Increased dwell times and congestion at rail terminals can potentially lead to delays in the movement of goods in the coming few weeks.

Potential Vancouver Strike and Cargo Shift

  • In light of recent developments, we have observed significant cargo shifts from PNW to PSW due to the potential strike looming in Canada rail. This adds to the existing trend of cargo movement from USEC to USWC prompted by the Red Sea crisis.

Tepid US Consumer Confidence Affects Clothing Imports

  • Tepid US consumer confidence impacts clothing imports, influencing shipping demand and capacity utilization in the ocean freight market.
  • Despite rising consumer demand for imported apparel and footwear in 2024, retailers remain cautious due to concerns about overstocking, stemming from excess inventory clearance efforts.
  • This cautious approach by retailers leads to fluctuating shipping demand, as they balance the uptick in consumer demand with the need to manage inventory levels carefully.
  • Fluctuations in shipping demand affect capacity utilization and freight rates in the ocean freight market, with potential implications for carriers and logistics providers.
  • Volatility in freight rates underscores the importance of agile supply chain management strategies to adapt to changing market conditions while mitigating risks associated with uncertain consumer confidence.

Capacity Injection for India - US Spot Rates for May Sailings

  • Capacity injection on India-US trade routes leads to flat to lower spot rates, reflecting market dynamics and competitive pressures.
  • New services like the West India-North America Express (WIN) service may impact spot rates and competition among carriers.
  • This decline in spot rates is attributable to the introduction of new capacity on the India-US trade routes, resulting in increased competition among carriers.
  • The WIN service, set to commence at Nhava Sheva with a May 12 call from the ONE Modern vessel, represents a significant addition to the trade route.
  • The nine-vessel weekly loop, which includes slot charter space from HMM, offers enhanced connectivity and frequency for shippers operating between India and North America.
  • Ports of call on the Indian leg of the WIN service include Hazira and Mundra, highlighting the strategic significance of these terminals in facilitating trade flows.
  • Data obtained indicates a notable increase in shipper bookings on the new WIN service, underscoring the demand for reliable and efficient transportation solutions in the India-US trade lane.

First commercial ships sail through Baltimore’s deep-draft channel

  • The Fort McHenry Limited Access Channel, opened in response to the Key bridge collapse, facilitates passage for stranded vessels.
  • Offering a controlling depth of at least 35 feet, it provides a crucial route for commercial traffic and is the fourth alternative channel near the wreckage site.
  • Balsa 94, a general cargo ship, was the first vessel to transit the channel, guided by two tugs.


Author
Matthew Crocker / CCO


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