Golden Week typically signals growth in consumer demand and economic activity, but this year results fell short of analyst expectations and suggests a muted recovery. So what can we expect?
Numerous articles have been written about various market challenges, including low water levels in the Panama Canal, rail congestion in major centers such as Los Angeles/Long Beach, canceled services and increased frequency in blank sailings. At the same time, ocean freight leader Evergreen Line has acknowledged they have ordered too many vessels, leading to wild rate fluctuations, and Descartes’ Datamyne reporting is showing continued month-over-month growth in import volumes and predictions that volumes will return to pre-Covid levels.
So what does this all mean? Pre-Covid, ocean carrier capacity was already exceeding demand and rates were under pressure. Since then, we have seen a steady stream of new - and bigger - vessels entering into service, leading to a return to market uncertainty, and where we can expect a roller coaster ride with freight rates, coupled with a deteriorating quality of service. As carriers avoid speeding-up vessels to maintain reliability and manage their costs, we’ll see an increase in blank sailings and sliding vessels, and the outright cancellation of services.
Truckers are also under pressure. Many had invested in chassis that had high utilization during Covid, but with declining volumes after the Covid peak and better turn times, they are now stuck with fixed costs. This is in addition to increased competition as the overall number of available truck loads decreases as the overall market size shrinks.
So what should you do? The ocean spot market creates opportunities to reduce costs, but can be unpredictable; with constant cost variability, delayed notification on actual costs and limited market-rate stability that typically lasts only 1-2 weeks. We encourage importers to be cautious about chasing the lowest cost carrier. It's important that you manage long-term relationships to ensure allocation, and to make sure you understand the quality of the services you book. Know what’s most important for your business: is it delivery reliability, cost, or a combination of both? There is a danger that if rates drop too far, carriers will exit the market, putting your supply at risk.
Oct 17, 2023
Dive into the most recent developments, challenges, and global trade supply chain trends.