Reoccurring events such as the year-end holiday season used to provide a level of predictability to ocean-shipping trends in the transpacific eastbound trade lane. Typically, holiday peak-season volumes ramped up in July, with August and September being the busiest months, and volumes tapering off in October.
Nothing has been typical in the last few years for ocean carriers. An oversupply of capacity has pushed carrier financials into the red, forcing consolidations. The U.S.-China trade war has led to additional uncertainty.
With shippers seeking to avoid potential tariff increases by front-loading inventory in the second half of 2018 (and especially the fourth quarter), the market saw drastic increases in volume. Going into 2019, with high inventories of imports, carriers have shown more discipline in controlling capacity than ever before. Thanks to diminishing volumes from China, and tariff uncertainties continuing to disrupt the market, this will not be a typical peak season.
The potential cost of new tariffs has caused many shippers to opt instead for assuming higher inventory-carrying expense. Accordingly, significant volumes of ocean cargo shifted to earlier sailings than normal, disrupting typical volume trends in the third and fourth quarters of 2018.
Normally, we see a rush in ocean shipping just before the Chinese New Year. However, volumes this year were not as strong as in previous years. Inventories remained high for shippers that had front-loaded orders in 2018, so demand continued to be weak within the transpacific eastbound trade lane.
According to JOC.com, imports from China declined 5 percent in the first half of 2019. That’s not to say they were down everywhere, however. Many Southeast Asian countries — including India, South Korea, Taiwan, Thailand, and Indonesia — have increased their imports into the U.S. by 13 to 37 percent compared with last year. And total imports in the trade were up 1.4 percent during this period. The trend confirms that importers are shifting their sourcing locations to countries other than China.
In 2018, due to new vessel orders entering the global fleet, carriers announced an 8- percent increase in capacity on the transpacific eastbound trade lane, to take effect in January and early February. When it became evident that first- and second-quarter growth in the trade was less than expected, carriers removed the additional capacity. This action contributed to the space challenges experienced in the second half of 2018, when importers were front-loading inventory.
With the shift of import volumes from China to Southeast Asia and the India subcontinent, U.S. carriers have added ports of call to their existing Southeast Asia strings, without increasing capacity. The sole exception is the new Maersk-Zim joint service into the U.S. Gulf, which will begin this month.
The removal of recently added vessels in 2018 demonstrated that carriers possess the discipline to control capacity. They are determined to prevent spot-market rates from deteriorating to the levels of the 2016 ocean market crash. That’s why we’ve already seen a record number of blank sailings in 2019.
A “blank sailing” refers to a carrier cancelling a sailing. This can mean either that an entire sailing is scrapped, or that one or more ports on a scheduled route are skipped. In the process, carriers create artificial roll pools at origin (shifting cargo to the next available sailing), which constricts space in the market from that port or route. Blank sailings can add to space and operational challenges at ports and inland rail destinations in the U.S.
We’ve also seen extra loaders this season, which are ships that don’t follow a regular schedule. Such a practice can inject capacity into lanes where demand is high.
While this move might seem contradictory to the cancellation of scheduled sailings, most of the extra loaders have gone into the East Coast and U.S. Gulf region due to Panama Canal restrictions on vessel loadings. This season, many ships were unable to load to maximum capacity because it would risk their ability to pass through the canal. In some instances, they had to unload cargo in Panama to get through the locks. The situation was partly driven by large beneficial cargo owners (BCOs) looking to get their orders before the peak season.
Many analysts are predicting a quiet or slow 2019 peak season. All we know so far is that conditions vary drastically from one coast to another.
On the U.S. East Coast, inbound ocean-shipping volumes have remained somewhat steady this year, due in part to the Panama Canal’s draft limitations. However, in recent weeks, such restrictions have been deferred because of a rise in water levels. On the Suez services from Southeast Asia and the India subcontinent, vessels continue to be full, with high levels of utilization.
With volumes considerably down to the Pacific Southwest in the first six months of 2019, carriers serving the U.S. West Coast have employed more blank sailings than ever. According to SeaIntelligence Maritime Consulting, carriers in the transpacific lane voided 73 sailings in the first half of 2019. Many were expecting an increase in volumes by August. This has not yet proved to be the case, however, and I expect the rest of August and September to bring more void sailings.
While it might seem as though carriers are controlling prices for ocean shipments in today’s market, there are some strategic tools that shippers can deploy to help counter volatility and uncertainty during the months of September and October:
Communicate with providers. Make sure your providers know if you expect to have higher-than-normal shipping volumes during these peak months. If you haven’t already done so, share forecasting information four to eight weeks in advance.
Choose diversified service providers. A diversified provider, or a single-service provider with access to many carrier sailings, can offer multiple carrier options, as well as any special products that might be available during peak months. Diversification in carrier selection lowers the risk of freight delays or cancellations. As carriers continue to void sailings, you need alternative options for your freight.
Have a plan for your freight once it reaches port. While many ocean terminals have undergone enhancements and continue to seek operational improvements to avoid the challenges of last season, you need to ensure that you have a standard process in place with service providers regarding the import process and over-the-road transportation. Reliability is key, both at origin and destination.
Forecast and add lead time when possible. Furnish your service provider with the latest shipment forecasts, with as much lead time as possible — 14 to 21 days is often ideal — to make bookings at origin. Keep in mind that this alone will not guarantee you space, but will support your case.
Procure enough capacity. Review your existing procurement levels with service providers to ensure you have enough capacity. Most carriers in the market will look at the minimum quantity commitment and divide by 52, which becomes the weekly space allotment they’ll provide for your shipments. Review in detail any weekly increases with your current provider, especially any forecast changes that don’t align with your weekly average agreement. When you need additional space, work to ensure in advance that you have options for meeting your schedule. If you’re reducing volumes, share this information as well. This can help to build trust with your service provider and underlying carriers.
This year’s preparation for a delayed and slightly weaker peak season might differ from years past, but there’s no doubt that proactive planning and forecasting can make a big difference in the success of your peak-season ocean shipping.
Ali Ashraf is director of North America ocean product with C.H. Robinson.
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