Reoccurring events—like the holiday season—used to provide some level of predictability to ocean shipping trends in the transpacific eastbound (TPEB) trade lane. Typically, holiday peak season volumes ramped up in July, with August and September being the busiest months, and volumes tapered off in October.
However, nothing has been typical in the last few years with ocean carriers. The oversupply of capacity has caused carrier financials to be in the red, which lead to consolidations. Not to mention the U.S./China trade war that started in 2018 acting as both a blessing and a curse for ocean carriers.
As many shippers front-loaded inventory in the second half of 2018—especially the fourth quarter—to avoid potential tariff increases, the market saw drastic volume increases beyond what we’ve come to expect from years’ past. Thus, going into 2019, with high inventories on imports, carriers have shown more discipline in controlling capacity than ever before. Because volumes have declined from China and tariff uncertainties continue to disrupt the market, this season will not be a typical peak season.
Higher inventories to avoid tariffs
The potential costs of new tariffs meant many shippers were willing to pay higher inventory carrying costs rather than face tariffs. 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 (CNY). However, this year CNY volumes were not as strong as previous years. Inventories were still high for the shippers that front-loaded orders in 2018, so demand continued to be weak within the TPEB trade lane.
In fact, according to JOC.com, imports from China declined 5% in the first half of 2019. While it’s easy to see that imports from China are down, that’s not to say imports are down everywhere. In fact, JOC.com sites many Southeast Asia countries—including India, South Korea, Taiwan, Thailand, and Indonesia—have significantly grown their imports into the United States, anywhere from 13-37% compared to last year. And, total imports on trade were up 1.4% during this period. This shows importers are shifting their sourcing locations to countries other than China.
Carriers controlling capacity
In 2018, due to new vessel orders entering the global fleet, carriers announced an eight percent increase in capacity to the TPEB trade lane in January and early February. After less growth than expected in the first and second quarters, carriers removed the additional capacity. This also contributed to the space challenges in the second half of 2018 caused by importers front loading inventory.
Since demand to the United States has decreased from China and increased from Southeast Asia and the India subcontinent, many U.S. carriers have added additional port of calls to existing Southeast Asia strings, without introducing additional capacity.
As carriers showed in 2018 by removing the recently added vessels, they continue to show the discipline needed to control capacity. In an attempt to control spot market rates from deteriorating to the levels we saw in 2016 during the ocean market crash, carriers today continue to show more discipline in controlling capacity than any other year—which is why we have already seen a record number of blank sailings in 2019.
Blank sailing typically refers to a carrier cancelling a sailing. This can mean either an entire sailing is scrapped or that a port (or ports) on a scheduled sailing will be skipped. By skipping certain ports and/or voiding an entire sailing, carriers can create artificial roll pools at origin, which constricts space in the market from that port or route. Blank sailings can compound space challenges and add operational challenges at ports and inland rail destinations in the United States.
We have also seen extra loaders this season, which are ships that don’t follow a regular schedule. Deploying extra loaders can inject capacity into lanes where demand is high.
Many believe this is counterintuitive to extra void sailings. However, most of the extra loaders have gone into the East Coast and U.S. gulf region due to Panama Canal restrictions. This season, many vessels were unable to load to their maximum capacity as they would risk their ability to pass through the canal. In fact, there were some instances where vessels had to unload cargo in Panama to get through the canal. This was partially driven by large beneficial cargo owners (BCOs) looking to get cargo before the potential peak season.
Peak season coast to coast
Many analysts still predict a potentially quiet or slow 2019 peak season. All we know so far is that conditions vary drastically from one coast to the other.
East Coast ports
Ocean shipping volumes into the East Coast have remained somewhat steady this year, due in part by the Panama Canal’s weight restrictions. However, in recent weeks, new restrictions have been delayed as water levels return. On the Suez services from Southeast Asia and the India subcontinent, vessels continue to be full with high levels of utilization.
West Coast ports
With volumes considerably down to the Pacific Southwest in the first six months of 2019, carriers have employed more blank sailings than ever. According to SeaIntelligence Maritime Consulting, carriers in the transpacific lane have voided 73 sailings in the first half of 2019. By August, many expected an increase in volumes. However, this is not yet the case and I expect the rest of August and September to bring more void sailings.
5 strategies for 2019’s ocean peak season in September and October
While it may seem like carriers are controlling prices for ocean shipments in today’s market, there are some tools shippers have at their disposal to help counter volatility and uncertainty.
1. Communicate with providers
Make sure your providers know if you will have higher than normal shipping volumes during September and October. If you haven’t already done so, share forecasting information four to eight weeks in advance. C.H. Robinson’s local experts in offices around the globe use this kind of information to help manage peak season ocean freight and resolve problems in real time.
2. Choose diversified providers
Diversified service providers or a single service provider with access to many carrier sailings offered in the market, can provide you with multiple carrier options as well as any special product offerings that may be available during peak months. Diversification in your carrier selection lowers your risk of freight delays or cancellations. As carriers will continue to increase void sailings, you need alternative options for your freight. Look for a market leader in global trade lanes, like C.H. Robinson, to help you efficiently secure the rates and capacity you need.
3. Have a plan for freight once it reaches port
While many ocean terminals have gone through enhancement processes and continue to look for operational improvements to avoid the challenges of last season, ensure you have a standard process in place with service providers regarding the import process and over the road transportation. Reliability is key—at both the origin and destination.
4. Forecast and add lead time when possible
Work with shippers at origin to provide your service provider 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.
5. Procure enough capacity
Review your existing capacity procurement levels with service provider(s) to ensure you have enough. Most carriers in the market will look at the minimum quantity commitment (MQC) and divide by 52, which becomes the weekly space allotment they will provide for your shipments. Review in detail any weekly increases with your current provider, especially any forecast changes that do not align with your weekly average agreement. When you need additional space, work with them in advance to ensure you will have options that meet your schedule. If you are lowering volumes, also share this information. This can help build trust with your service provider or their underlying carrier.
Peak shipping season will be here soon
While this year’s preparation process for a delayed and slightly weaker peak season may be a bit different from years’ past, there’s no doubt that proactive planning and forecasting can make a big difference in the success of your peak season ocean shipping.
Need help planning for peak season shipping? Contact a C.H. Robinson ocean expert today.