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CONTAINER QUARTERLY: Market questions peak season scale as consumer sentiment drops

Highlights

China-US rates fall 10% in the second quarter

Total US imports slide 2.4% between March, April

'Weaker-than-expected' volumes as Shanghai loosens restrictions

  • Author
  • David Lademan
  • Editor
  • Valarie Jackson
  • Commodity
  • Shipping

Container freight market participants are looking with unease toward peak import season and beyond as booking inquiries for US imports remain under pressure amid rising inflation and weak economic outlook.

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Trans-Pacific volumes and booking inquiries have edged down further in the final weeks of the second quarter as shipowners report lower vessel utilization out of Asian loading gateways. One shipowner source noted that "spot market space is ample out of China."

In-kind freight on the North Asia-North America run has been under pressure during Q2 as pockets of vessel space have opened up. PCR13—North Asia-to-West Coast North America—slid 10% during Q2, coinciding with a dip in volumes brought on by extensive lockdowns in and around Shanghai, which began to unwind June 1.

But despite easing restrictions in Asia, volumes have failed to rebound to meet prior expectations, while consumer appetite appears to have waned in the US, and large retailers have been heard cutting back orders amid an abundance of inventory.

"Forecasts from BCOs and NVOCCs alike, show a weakness in the TPEB market through June, possibly mid-July .... Other importers moved peak season goods earlier than usual to avoid anticipated space issues similar to the problems they had in [Q3] 2021," said analyst Jon Monroe.

This has prompted widespread uncertainty among market participants as to the magnitude of the North American peak import season, which typically runs between July and September, and many sources expect volumes to peak at lower levels than originally projected.

Imports primed for a downturn

As lockdowns in China were met by tapering US consumer demand, total US imports slide by 63,000 TEU between March and April to 2.56 million TEU, according to Hackett Associates.

Total TEU throughput at the Port of Los Angeles registered negative growth for the first time this year in April and May, falling 6.29% and 4.36%, respectively. The nearby Port of Long Beach registered a 1.7% decline during May, the first decline since December 2021.

Loaded imports alone declined 6.67% in May at the Port of Los Angeles.

"We do see the beginnings of a decline in the growth rate of imports in the second half of the year," said Hackett Associates in its Global Port Tracker report. "Despite this, we expect to see continued shipping capacity constraints and a likelihood of a recovery in freight rates from their recent declines ... as the uptick in volumes from China is felt."

Loaded imports remain well above pre-pandemic averages, however, particularly at key USEC ports, where volumes have remained strong throughout the year.

The port of New York/New Jersey reported a 15.6% bump in loaded imports during April and has not seen negative throughput growth since February 2021.

Much of the volume growth on the Eastern Seaboard has been attributed to shippers looking to reroute cargoes away from congested West Coast gateways, in a bid to hedge on market-wide constraints. Additionally, looming contract expirations for the West Coast longshoreman's union could lead to a slowdown, or, less likely, stoppage of cargo handling at Pacific Coast container ports.

Labor issues

The West Coast Longshoreman's labor contract is set to expire July 1, ending a no strike/no lockout agreement between employers and workers' unions.

While most market watchers do not expect a strike to occur, there are residual fears of a cargo handling slowdown at USWC container gateways, which severely affected port performance in the aftermath of soured negotiations in 2014.

Three of the last four negotiations between the union and employers resulted in temporary work stoppage before a deal could be struck.

"A lot of what happens in the next 60-90 days depends on what happens with ILWU negotiations," said a freight forwarder.

Currently, Pacific Coast ports have seen some normalization in congestion and vessel backups. Just 16 vessels were at anchor or slow steaming towards the twin ports of LA/LB June 29, according to the SoCal Marine Exchange, well below the 109 vessels counted in Q1 2022.

Coast differential remains widened

Intermodal network constraints aren't the only headwinds that cargo owners are dealing with, as freight rate spreads for boxes into the USEC versus those to the USWC remain well above historical levels.

The differential between PCR13—North Asia-to-USWC—and PCR5—North Asia-to-USEC—was $2,500/FEU June 30, up from the 2021 average of $1,229/FEU. The spread peaked at $4,500/FEU April 11 and has averaged $2,840/FEU during Q2 2022.

"[In July,] East Coast ports ... [are] expecting on average 44% more vessels than the weekly 2022 average," said Everstream Analytics. "This overall shift explains why Asia-US East Coast rates have dropped less sharply than Asia-US West Coast rates in the last three months, and demand into the US East Coast seems to only be growing as indicated by vessel arrival forecast for July."