Freight volumes continue to surge on all trade lanes, especially US imports from Asia and Europe. It is becoming increasingly likely that this prolonged surge will last for several more quarters, into Q1-Q2 2022. US retail importers are projecting a very strong peak season ahead of back-to-school and holiday demand. Economic conditions continue to improve overall, with the US on track for 6.5% GDP growth in 2021. Despite booming import volumes, US inventories are at their lowest level since 1992. Consumer spending is still way up; US retailers are reporting impressive sales results, but struggling to maintain adequate supply of goods.

Equipment imbalance is still a major issue. Availability in Asia and Europe is at critically low levels. Between the global carriers, over one million new boxes are on order, scheduled for delivery late this year and early next year. In the meantime, carriers are working to expedite empty containers back to origins for their most profitable lanes, including Transpacific Eastbound (TPEB). The negative impacts of this strategy on some US exporters and importers are mounting. Export demand is strong, but container availability in the US is scarce, especially at US inland points. Further, carriers are routinely declining to move inbound cargo destined for inland IPI/RIPI points, since they prefer to terminate at ports for faster turnaround of containers and repositioning overseas. Importers trying to ship cargo to the interior of the US and Canada are finding very few rail options. In many cases, the only solution is to terminate at a port and incur expensive charges for long-distance drayage or transload/truckload service.

Ocean capacity remains a challenge as well. Carriers are placing orders for new vessels, but not at a rate aggressive enough to meaningfully increase overall global capacity. Order books have been very low for several years, and there is cyclical reduction of capacity through regular scrapping of old vessels. It’s clear that carriers do not want to over-order and risk a return to the overcapacity that plagued their side of the industry for more than a decade.

In response to the continued freight supply and demand imbalance, rates have reached historically high levels. TPEB market spot rate indices jumped in recent weeks after 7+ months of stability. Those indices, however, continue to exclude the extra premium surcharges that are now near-universal on the trade, adding thousands of dollars to the cost of each container shipped. Loadable market rates from Asia base ports to US east coast ports easily top $12,000 per FEU. The typically stable Transatlantic Westbound (TAWB) trade is experiencing a rate surge as well. Incredibly, loadable rates from North Europe ports to US east coast are running anywhere from $6,000 to $12,000 per FEU.

Last week, Hapag-Lloyd shocked the market with an announcement of a mid-June TPEB rate increase of $3,000 per FEU. Other carriers reacted by soliciting feedback from customers for re-evaluation of their own planned rate increases. While it’s unlikely that the market will swiftly adjust by a full $3,000, the announcement signals another imminent, significant increase in freight rates.

As expected, shippers are concerned about super-high freight rate levels, particularly since costs are still rising even as carriers post exceptionally high profits. Hapag-Lloyd reported Q1 2021 earnings before interest and taxes of $1.5 billion, more than their combined profit for all of 2020. Maersk announced net profit of $2.7 billion for Q1, just shy of their overall 2020 profit. The other major carriers are posting similarly astounding results. For now, the FMC has no intention of regulating market rate levels despite pressure from shippers. The combination of carrier pricing discipline and record demand has helped propel carriers into a position of power in the market, and it’s highly doubtful that there will be a return to significantly lower rates in the foreseeable future.

Domestically, port congestion is still a major challenge, with port on all coasts experiencing delays. Wait times for transfer from terminal to rail are running anywhere from 15 to 60 days in some cases. The shortage of truck drivers and chassis is further complicating matters. In many large markets including New York and Savannah, it often takes a full month to secure truck power. Costs are rising as supply chain labor commands higher wages. Fuel surcharges have increased as well, most recently due to last week’s panic-induced fuel shortage after the Colonial Pipeline cyberattack.

After over a year of unprecedented supply chain disruption and sky-rocketing transportation costs, many in our industry and beyond are wondering where the ceiling is; how much added cost and disruption can shippers bear, particularly US importers? Inflation fears are prevalent, and consumer prices are already rising across a variety of industries due to record demand, product shortages, and increased transportation costs. For low value cargo in particular, high freight costs have a significant impact on the bottom line. Shippers of those goods have little choice but to pass the extra costs along in the form of higher prices as long as freight rates remain at elevated levels. For now, there is no end in sight to market demand and the extraordinary power shift we’ve witnessed in shipping over the last year.

Overall, expect current market conditions to persist through this year, and most likely well into 2022. Bookings should be requested no less than one month in advance to secure capacity, equipment, and truck power. Forecasting will be even more critical as carriers push for regular, weekly volume commitments throughout the year.

 

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Your CVI team is here to assist you through these current market challenges. Ocean freight, air freight, domestic road/rail, and Customs Compliance – count on our dedicated professionals to care for you and your supply chain. Call us and let us show you what we can do!

 

Rachel Shames

Director, Pricing & Procurement

CV International, Inc.

 

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Rachel serves as Director, Pricing and Procurement for CVI. Her responsibilities include vendor selection, contract management and negotiation, transportation pricing, FMC compliance, and international agent network management.

Rachel began her career in international shipping with CMA-CGM America. She joined CVI in 2011, gaining experience in various departments with a focus on inside sales and marketing for the company. In 2014, Rachel assumed the role of Manager, Transportation, working on service procurement and development of client proposals. She has served in her current position since 2018.

A native of Norfolk, Virginia, Rachel earned her bachelor’s degree from the University of Michigan in 2005. She holds a Master of Business Administration with a concentration in Maritime and Supply Chain Management from Old Dominion University.

– Rachel Shames, Director, Pricing & Procurement, CVI
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