Why Freight continue to raise and where is it going , when will it stop ?
Fight for trans-Pacific vessel space intensifying
Bill Mongelluzzo, Senior Editor | Jul 08, 2021 10:08AM EDT
“You haven’t seen anything yet.” That is the warning container lines, forwarders and consultants are giving US retail importers from Asia for the next three months as the eastbound trans-Pacific trade enters the traditional peak shipping season facing an unprecedented shortage of vessel capacity.
After 11 months marked by double-digit year-over-year increases in US imports from Asia, and volumes rising 40 percent in the first five months of this year alone, the trans-Pacific shipping network, from Asian-origin ports to US destinations, has been sagging under the pressure. But shipping executives say the worst is yet to come, putting upward pressure on already record spot rates, and intensifying vessel delays and congested marine terminals at major US seaports.
The combination of accelerating import volumes, tight vessel capacity at Asian load ports, congested US ports, and an intermodal rail network stretched almost beyond capacity has driven retailers and other importers to near desperation as they attempt to book vessel space four to six weeks ahead of scheduled departures from Asia. Industry experts say the vessel capacity shortages retailers experienced in the second quarter will likely get worse in the third quarter.
Imports are projected to surge another 14 percent year over year in July, 7.5 percent in August, and tick up 1.7 percent in September against stronger comparisons from the second half of 2020, according to the Global Port Tracker, which is published monthly by the National Retail Federation and Hackett Associates. Spot rates in the eastbound trans-Pacific have been increasing along with imports, a trend that has been under way since the start of last year’s peak season. According to Drewry, the average spot rate from Asia to the US West Coast reached $7,613 per FEU in the last week of June, up 3.1 percent from the previous week and 172.5 percent from the same week in 2020. The Asia–US West Coast spot rate first reached $3,000 per FEU in August 2020 and has climbed steadily since then, more than doubling over the past year. Carriers have successfully implemented general rate increases (GRIs) on a monthly basis over the past year, and more recently, they have been implementing GRIs twice a month.
But even those record-high spot rates will not guarantee space on vessels leaving Asia. Retailers and non-vessel-operating common carriers (NVOs) must pay premium rates to guarantee that their containers will be loaded onto vessels. Rate sheets that NVOs shared with JOC.com list space guarantees ranging from $1,000 per FEU to as high as $5,000 per FEU on top of the spot rates, which can push the all-inclusive freight rate to the West Coast above $10,000 per FEU.
Consumer demand off the charts
“It’s a very scary year, but it’s not over. In many ways, it’s just beginning,US gross domestic product (GDP) is projected to increase 7.9 percent in the second half of 2021, and to remain strong through 2022. IHS Markit has revised its 2022 projection for GDP growth to 5 percent from 4.8 percent.
Inventory replenishment will continue to drive some of the import growth, at least for the short term. The retail inventory-to-sales ratio in April was 1.07, down from 1.67 in April 2020, according to the US Census Bureau.
“None of this appears sustainable, but predicting when we return to ‘normal’ does not seem possible,” Murphy said.
The acceleration of import volumes into North America comes as other east-west trade lanes compete for vessel space and equipment at Asian ports, and this will only exacerbate the space shortages during the August–October peak ocean shipping season.
“It’s hard to get on a ship anywhere in the world now” said David Bennett, COO of the NVO Farrow. “There will be a big space shortfall coming for the peak season. There’s not a single touchpoint that isn’t under enormous stress.”
Capacity gone in a blink
Lawrence Burns, a former executive at HMM who is now an industry consultant, said shippers and forwarders can sling mud at the carriers for the capacity shortfall, but the reality is that there is more demand for slots on vessels leaving Asia now than there are vessels to carry the freight. “This is Supply Chain 101,” he said.
Industry analysts predict that the space shortages will not be resolved even as several carriers the past month announced new services, or in some cases deployment of extra-loader vessels, to both the West and East coasts, leading to what Sea-Intelligence called an “unprecedented” injection of capacity into the trade for the peak season.
Despite the projected increase in capacity, most carriers will only be able to serve their book of steady business, and they are telling importers to seek additional space from NVOs, according to a carrier executive who asked not to be identified.
Shippers are also scrambling to circumvent lengthy delays at US ports, especially on the West Coast. NVOs say one option shippers might consider is air freight, if it is feasible.
Whiplash, which operates import distribution warehouses on the West and East coasts and recently rebranded from Port Logistics Group, is seeing an increase in transloading of merchandise into trailers to be shipped to the Midwest via truck, said Scott Weiss, vice president of business development. Generally speaking, the warehouse space necessary to transload — and the equipment to do so — is available and it is less costly than shipping by air, too, Weiss said.
Similarly, with ocean carriers discouraging the inland shipment of intact marine containers, known as inland point intermodal (IPI), because they want to turn the containers quickly at the ports and return them to Asia, some importers are transloading the contents into domestic rail containers and shipping them inland via the domestic network.
Until a couple of weeks ago, the domestic rail network was less stressed than the IPI network at West Coast ports, but Anthony Chavira, chief operating officer at Rail Delivery Services in Southern California,
said the delays at the on-dock yards at ports and at the off-dock rail yards have caused a knock-on effect at the domestic rail facilities.
“They’re taking crews away from domestic. It’s a relatively recent phenomenon,” he said.
Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.
Look forward we current face more peak season surcharge for the holidays . After this we are in peak season for CNY holidays . So most project we will not see much changes until March of 2022 before we see some relief. We will continue to keep everyone posted of any changes and continue to deliver the goods your depend on to grow your business.