Freight shipping companies are witnessing an increase in canceled sailings from China as they grapple with a significant pullback in orders. Trade tensions and tariffs are accelerating this nascent trend. Depending on which scenario plays out, the future of ocean freight rates and logistics operations in general are at stake. The HLS Group shared a cumulative 80 blank sailings posted, a reflection of the industry’s quick reaction to shifting demand.
During the COVID-19 pandemic, shippers worldwide identified blank sailings as a primary factor in container rates that surged as high as $30,000. Ocean carriers have a historical tendency to overshoot the cancellation of sailings, which added to the spikes in pricing. The ongoing geopolitical climate is further increasing trade resiliency. As a result, these carriers are being forced to implement tried and true strategies to cope with the reduced demand.
As orders diminish due to the collateral effects of the trade war, ocean carriers are proving to be the fastest variable in this equation. They are blanking sailings, eliminating some ship strings, deploying smaller vessels and adding transit times. Taken together, these strategies are an effort to stretch the space they have for containers, leading in turn to a greater utilization of the vessels that are left. The combined loss in capacity creates ambiguous effects on pricing ocean freight overall.
Even big ocean freight alliances—such as Ocean Network Express (ONE) have created suspended or blanked routes. This action is a clear sign that the Biden Administration is paying attention to an increasingly challenging market. Photo via ONE ONE recently announced it would permanently suspend one of its routes, which had only been planned to return in May. This decision impacts all major ports today, including Qingdao, Ningbo, Shanghai, Pusan, Vancouver and Tacoma.
The effect this has had on U.S. exports destined for countries in Asia can’t be understated. The removal of those vessels and decreased freight container movement will have serious and lasting impacts on our economy and supply chain. Alan Murphy, CEO of Sea-Intelligence, commented on the unpredictability of the current situation:
“We have no way of knowing how significant this drop in orders will be on vessel schedules.” – Alan Murphy, CEO of Sea-Intelligence
Each sailing generally moves an average of 8,000 to 10,000 TEUs, or twenty-foot containers. Thus the decline translates into a loss of a bit over 640,000 to 800,000 containers. This reduction will have a profound impact on operational realities at ports, resulting in less crane moves and reduced fees garnered. Furthermore, it will likely cut into truck and rail yard intermodal container pick-ups and transport services.
The repercussions extend throughout the supply chain. Freight traffic to North America continues to drop. This drop will create strain for logistics companies as they try to manage the influx and outflux of goods, possibly stalling industries that rely on these overseas imports. Bruce Chan, director of global logistics & future mobility for Stifel, expressed concerns about the potential decline in inbound containerized imports:
“That uncertainty is beginning to manifest in blanked container ship sailings on core eastbound transpacific lanes, in our view, opening the potential for a double-digit decline in inbound containerized imports as early as next month.” – Bruce Chan
At the same time, the mid-low ocean rates have skyrocketed by 43% since March 30 for shipments starting in Vietnam. This enormous spike further emphasizes the escalating, exorbitant costs of moving goods proved short for bigger shippers on some specific ocean lanes. Peter Sand, chief analyst at Xeneta, remarked on the implications of current trends:
“The fact that the lower end of the market has been rising shows the heat is on.” – Peter Sand, chief analyst at Xeneta
Now shippers have to pay higher rates due to strenuous frontloading and booking requirements. They’re rethinking their logistics strategies to manage through the madness. Sand further noted:
“Shippers large and small all have to pay up for frontloading, as the ‘pause’ made the pulling forward of freight possible again.” – Peter Sand, chief analyst at Xeneta
Tariffs continues to be a hanging sword over war on international trade relations. This has fostered a climate of fear over potential hikes to come. Sand cautioned:
“There is every possibility the higher tariffs come into effect 90 days from now or even at an earlier stage.” – Peter Sand, chief analyst at Xeneta
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