Aerial view of a working dock and cargo ship begin loaded by a crane

Logistics Market Update – January 2023

Logistics Market Update – January 2023 690 518 Transmodal

It’s feels like the pendulum has swung—from boom to bust.

The last few years had segments of the industry beside themselves in glee as they raked in huge profits. But the boom is bust, and it’s time to stop swaggering. The party is over for ocean carriers especially, and they’re preparing for things to get even worse. To the extent that major trade lanes canceled 100 sailings between Dec. 12 and Jan. 15.

Click to Read: https://www.freightwaves.com/news/viewpoint-ocean-girdle-tightens-as-trade-slims-down

Closer to home, trade between the US and Mexico is expected to remain steady through 2023. During 2022, cross-border commerce between the two countries remained healthy in comparison to 2021 year-over-year stats. There was only a drop of 1% against the record spending of 2021 that spurred cross-border freight. And 2023? It looks like the future is just as bright, with Mexico becoming a choice location for companies who are considering nearshoring some of their operations.

Click to Read: https://www.freightwaves.com/news/us-mexico-trade-growth-to-remain-steady-in-2023-bolstered-by-nearshoring

Just when you thought it couldn’t get any worse—or, at least, after the last few years, you thought it could only get better. Unfortunately, after learning that global trade was far more fragile than we thought, we must accept that things could get even worse.

From past woes like the grounding of the Ever Given, the pandemic, the war, and more, we have a future that could be colored by currently festering issues. Issues like the Biden administration’s policies when it comes to global trade, especially with China.

Click to Read: https://www.ttnews.com/articles/fresh-fragility-global-trade-set-be-revealed-2023

December 2022 saw a drop of 19.3% in box volumes against December 2021, but still maintained a tiny increase of 1.3% over December 2019. All thanks to tanking global trade and increasing inflation. A recent Global Port Tracker report predicts a drop of 11.5% for January and 23% for February when compared to their corresponding 2022 months. Meaning imports will be much the same as they were when COVID lockdowns first went into effect and shipping volumes tanked.

Click to Read: https://www.wsj.com/articles/u-s-container-imports-tumbled-close-to-prepandemic-levels-in-december-11673373778?

Finally, in air freight news, air passenger traffic is almost back to normal, adding freight space capacity—almost too much capacity. Regardless, this has led to an easing of bottlenecks and fewer delays. But the industry is realizing, as things revert back, that they’re going back to a new normal, not pre-pandemic norms. And we can look to issues like a looming recession, higher energy costs, inflation, the ongoing war, and the trade war between the US and China as factors that are contributing to the change.

Click to Read: https://www.joc.com/article/global-air-freight-capacity-oversupplied-entering-2023_20221220.html

Confronting Supply Chain Challenges

Confronting Supply Chain Challenges 150 150 Transmodal

The pandemic didn’t just disrupt consumer behavior, it also sparked a major disruption in manufacturing, shipping, and all aspects of getting new products to market in a cost-effective and timely way. So, how have things changed, and what’s the outlook for the future? 

The pandemic has brought attention to how interconnected global supply chains are, and how disruptions in one country or with one shipping mode can have ripple effects throughout the system. The problems companies are experiencing getting products delivered on time and on budget are not unique to any industry or type of business. The situation is very difficult for everyone.

The challenges started with and continue to be driven by consumer demand. And although demand for goods dipped starting in March 2020 during the early days of uncertainty due to the pandemic, it quickly rebounded to above pre-pandemic levels by June 2020.

At that point, supply chains had not recovered to keep up with demand. And, still have not over a year later. This imbalance of demand and “broken” shipping networks has set off a chain of events for global supply chains that the industry is still trying to overcome.

Here are the problems the shipping industry is, or has had to, deal with over the past 18-months that are impacting supply chains today.

Fewer Carrier Options

Leading up to the pandemic, the cumulative effect of five years of ocean carrier consolidation and the creation of only three shipping alliances controlling 95% (just eight companies control 90%) of global container activity shrunk the available carrier options for shippers and BCO’s. This has helped to push rates, fees, and surcharges sky-high. For example, contract rates for 90 days and over on China-US West Coast routes are up 92 percent compared with 2019, according to JOC.com.

Not Enough Equipment

A lot of carrier capacity was taken off-line pre-pandemic. The trend had been for accelerated scrapping of older and smaller ships beginning in Q4 2015. This was partially driven by an increase in scrap metal pricing. Today, companies are often not able to get containers to load their products into at origin, and when they do, struggle to find space on ocean vessels – regardless of price-paid or agreements they have with carriers.

And, problems beget more problems. Additional blank/ void sailings happen when forced by any upstream unplanned transit delays. The problems are often magnified as ports operations continue to be frequently disrupted as COVID-related port closings and impacted labor shortages continue to happen, with China and Vietnam impacted most recently.

U.S. Logistics Bottlenecks

U.S. port congestion is at historic levels, with ships often waiting a month or more for unloading. From Spash274.com, Lars Jensen, founder of container consultancy Vespucci Maritime, estimated earlier this month that as much as 10% of the world’s shipping capacity has been taken out due to port congestion issues. And, through to May this year the time containerships spent waiting at anchor for berths more than doubled since 2019, according to IHS Markit’s port performance data. North America saw the biggest deterioration with vessels spending on average 33 hours on anchor in May 2021 versus an average of just eight hours in May 2019.

A shortage of truck drivers is delaying inland moves and other domestic shipping. This means even once a product reaches U.S. soil its problems aren’t over yet. The average annual turnover rate for drivers is about 95% for truckload carriers, the segment of the industry that moves trailer-size shipments long distances, according to a report by CNN.

Several other problems within the U.S. have persisted as well:

  • A shortage of chassis is delaying containers from ports to inland consignees.
  • There have been frequent rail delays and bottlenecks due to wildfires and shutdowns, in particular the Pacific NW and Mid-west.
  • Many warehouses are operating at or near capacity delaying offloading / processing of inbound freight. For example, the high demand and relatively low vacancy rates pushed rents for industrial space to new highs. “Asking rents skyrocketed in Q4 to a record $8.24 per square foot a year, 2.2 percent higher than in Q3 and up 8.3 percent from a year ago. This is the highest rate of annual growth on record,” CBRE said in a recent JOC article.

There may be some light at the end of the tunnel for the industry, here are some reasons why:

There is an anticipated shift in consumer spending back to travel and services. Note in the chart above, demand for services severely lagged pre-pandemic levels while demand for goods accelerated. And at the same time, companies are catching up, and inventory levels are being replenished to match demand.

More ships are coming. New vessel order books at highest levels since 2015, and deliveries begin early Q3 2022. And more containers are coming, too. There have been record orders for new containers.

COVID will hopefully get under control. There’s been an increase in vaccine distribution in Southeast Asia. And, notably, the U.S. government has its attention on the problem. It’s shown intention to address some of the systemic problems, including ocean carrier demurrage and detention.