June 9, 2020
Cargo Rolling of Trans-Pacific Shipments Warning Sign of Future Pockets of Tight Capacity
An unexpected surge in Asian exports to the United States in late May, causing cargo rolling at Asian ports and a spike in spot rates, warns of future pockets of tight capacity as shippers cautiously increase volumes and carriers plan blank sailings into August.
Tensions are rising between non-vessel operating common carriers (NVOs) and shipping lines, as NVOs charge that carriers are intentionally restricting capacity and overbooking vessels in the eastbound trans-Pacific in order to push freight rates higher. For their part, carriers blame the tight capacity on their customers’ inability to accurately forecast demand during the COVID-19 crisis.
Regardless of the cause, the tensions speak to larger trends in the container shipping industry, namely carriers’ successful management of capacity to meet future volumes and general uncertainty among importers of just how much restocking is needed as the North American economy recovers from the pandemic. These conditions are expected to continue in the coming months.
Carrier executives have said that the tight outbound capacity at Chinese ports resulted from an unexpected late-May spike in US imports. Volumes are increasing as retailers begin to replenish inventories of merchandise that have been moving out of warehouses to store shelves as the U.S. economy begins to reopen.
As a result, spot rates from China to the U.S. West Coast are unusually high right now, especially given the impact of the COVID-19 crisis on US imports from Asia, which fell 1.7 percent year over year in April after plummeting 17.4 percent in March, according to PIERS.
NVOs, however, charged that the spike in the West Coast spot rate is due mostly to carriers restricting capacity from South China to the ports of Los Angeles and Long Beach through blank sailings. Carriers this past month have blanked 36 sailings in the trans-Pacific, according to Sea-Intelligence Maritime Consulting. At the same time, import volumes have increased the past two weeks as some regions of the country reopened businesses that were closed during COVID-19 lockdowns.
“The country is opening faster than expected,” Jon Monroe, a transportation consultant who represents NVOs in Asia and the US, said in a newsletter to clients. Carriers are managing space so tightly through blank sailings that there is a two-week backlog in South China ports for shipments destined to Los Angeles-Long Beach, he said.
“The market is getting more volatile by the day as the surge of bookings continues to increase. This has severely impacted everyone’s capacity and allocations over the last two weeks,” Bennett wrote.
What’s more, Bennett said, “Carriers are taking full advantage of the situation and charging a premium for guaranteed loading or expedited services.”
Carriers said vessels leaving some Chinese ports the past two weeks were booked at 110 percent of capacity. NVOs were reportedly told by some carriers that due to vessel overbooking, their shipments would be rolled to subsequent voyages unless they paid as much as $500 to $700 more per FEU more than the listed rate.
When U.S. containerized imports from Asia plunged in March and April, carriers were planning their sailing schedules a month or so forward, the carrier executives said. Because they were given no insight into retailers’ plans for replenishing their inventories in May, they determined that in order to control costs, they would have to cancel sailings.
Anticipating a slow start to the peak-shipping season that runs from August through October, trans-Pacific carriers since April have canceled more than 120 sailings into July, according to Sea-Intelligence. Retailers likewise are expecting a slow summer shipping season.
The latest Global Port Tracker report, which is published monthly by the National Retail Federation and Hackett Associates, projected double-digit year-over-year declines in total U.S. imports in each month from June through September and a 7.6 percent dip in October.
Back-to-school merchandise traditionally represents the second busiest period of the year for imports from Asia, but this year, many school districts across the U.S. have yet to determine whether students will return to the classrooms in the fall or study virtually from home. This uncertainty is impacting back-to-school imports, which normally enter the country in May and June in order to be on store shelves immediately after July 4. Carriers say this has added yet another layer of uncertainty to the supply chain.