Transpac ocean market 'chaos' to continue

The performance of trans-Pacific container shipping supply chains is unlikely to improve in the short-term, with door-to-door reliability expected to remain poor until the current US import demand surge ebbs,  according to executives at US  forwarder Flexport.

One upshot is that soaring spot freight rates are unlikely to significantly tail off before ongoing long-term trans-Pacific contract negotiations are completed by carriers and shippers in early summer.

Examining the trade in the forwarder’s aptly named ‘Ocean Market Chaos Continues - What Next?’ webinar earlier this week, Jason Parker, Flexport’s head of trucking in North America, said: “I think current US port conditions will continue for the foreseeable future. Chassis availability is still at an all-time low. Turn-times at ports are still at all-time highs. There is a lack of trucking and there is no new capacity coming in to solve this problem.

“Really [any resolution is] going to be dependent on volumes decreasing, the number of vessels arriving getting more spaced out and then things getting back to normal. But that’s definitely not in the near future; (this is) the world we’re going to be living in for now.”

Retailers restocking

With retailers still in restocking mode and struggling to keep up with heavy consumer spending, US import demand continues to drive the trans-Pacific container shipping market.

After surging in the second half of last year, US imports have continued to rise in 2021. Year-to-date US imports are up 20% year-on-year, according to Nerijus Poskus, Flexport's VP of Ocean Freight.

Sea-Intelligence reported that after plunging in the second half of 2020, global schedule reliability of carriers fell to 34.9% in January, the lowest level recorded since the analyst launched the benchmark in 2011. But Poskus said current reliability on US to Asia services was closer to “the teens”.

Delays at ports are being compounded on land by terminal, chassis, intermodal, labour and drayage capacity issues, leaving door-to-door shipment reliability on the trans-Pacific at “closer to zero”, he added.

Currently over 30 ships are anchored outside Los Angeles/Long Beach terminals, while ten ships are queued at the smaller ports of Oakland and Savannah.

According to Poskus, blank sailings from Asia are now purely the result of vessel delays in the US preventing vessels from returning to Asia in time, rather than as a means of deliberately limiting supply to maintain freight rates.

US exporters suffer

Such is the rush to get boxes and ships back to Asia that US exporters are suffering as a result. “Exports are dropping slightly,” he added. “The reason for that is carriers in many cases prioritise empty equipment over low-paying exports from the United States such as agri (products).”

Poskus said the worsening imbalance in US imports and exports was exacerbating equipment shortages in Asia, although this had eased slightly since Chinese New Year.

Lines have reacted to the “extraordinary” demand for ocean transportation by adding extra loaders and launching nine premium ocean services from Asia to the US, said Jan Hinz, Flexport's Head of North America Ocean Freight. Even so, he added, spot rates on the trans-Pacific are currently three times higher than a year ago.

“We expect the current market condition to last as long as people continue to spend on goods versus services,” he added. “The question is when does it shift over?”

Answering his own question, he noted that in the US people were only now receiving the latest round of stimulus cheques. “We'll watch very closely where that money goes,” he added. “Are people starting to shift more to services - restaurants or travel? We are seeing domestic travel trending up.

“What we see so far in the market though is back-to-school sales, Halloween sales and secondary shipping holidays are very strong this year.

“People continue to spend on all things home improvement on the back of the strong housing market. And Amazon Prime Day is now on July [12 July) versus October.

“All this will trigger extra demand for transportation services and continue to drive the current environment. So, things will not improve overnight. The structural challenges in the market like (finding) empty equipment, disruptive peak season patterns, operational constraints and landside congestion will all take time to improve.”

More blanks if demand slows ?

Hinz said throughout 2020 carriers had consistently laid up capacity whenever demand looked like it would soften to keep an “artificial balance” between supply and demand. “In 2021 we expect this to continue,” he said, adding that when this “boom market” starts to end carriers would likely withdraw capacity once more to protect rates.

All of which leaves shippers in a tough negotiating position with carriers over long-term contracts. Although Drewry reported yesterday that Shanghai-Los Angeles and Shanghai-New York spot freight rates have remained stable over the past week, despite the compositive index of the World Container Index falling 1.7%, rates on the trades remain prohibitive for shippers of low value products.

Shanghai-Los Angeles freight rates are currently at $4,245 per FEU while Shanghai-New York rates are $6,618 per FEU, up 222% and 148% year-on-year. However, all-in rates are running at far higher levels, with shippers forced to pay extra for guaranteed slots and equipment.

Erin Atherton, Flexport’s Head of Account Solutions and Implementation, advised shippers issuing Request For Proposal (RFP) bids to carriers to be prepared to consider routing and transit alternatives.

She also recommended “thinking beyond port to port” and incorporating supply chain services including drayage, insurance and customs in RFPs.