1. As many large importers have still not finalized long-term ocean contracts, carriers are considering a June GRI to push rates up and shippers to seal deals.
2. Low water levels in the Panama Canal has many carriers announcing weight limits and surcharges for containers passing through starting in June. These steps will likely push rates up for transpacific containers heading to the East Coast, and a big enough shift in destinations could push West Coast rates up too.
3. Target announced that inventories are under control and new ordering will start soon – a good sign for the prospects of a peak season rebound this year, if enough other importers are doing the same, and if consumer demand holds up despite the threat of an H2 recession.
• Asia-US West Coast prices (FBX01 Weekly) increased 8% to $1,540/FEU. This rate is 89% lower than the same time last year.
• Asia-US East Coast prices (FBX03 Weekly) dipped 2% to $2,321/FEU, and are 85% lower than rates for this week last year.
• Asia-N. Europe prices (FBX11 Weekly) were stable at $1,385/FEU, and are 87% lower than rates for this week last year.
Ocean rates from Asia to the US West Coast edged up last week, though prices are still 11% lower than a month ago. Rates for the other ex-Asia lanes were stable and transatlantic prices dipped another 4%.
With many long term contracts still not finalized though, carriers may attempt another transpacific GRI in June – whose success would likely entail a significant increase in blanked siblings – to push more shippers and forwarders to seal deals at acceptable levels for carriers, as was done in April.
Another factor that could push rates up, especially for Asia - US East Coast containers, is the drought-driven low water level in the Panama Canal. Carriers have announced weight limits and surcharges of several hundred dollars per container for shipments passing through the canal starting in June. If these increased costs push some demand back to the West Coast, there could be some impact for West Coast rates as well.
But prospects overall for the timing and strength of a rebound in volumes and rates – or the appearance of a rebound at all – remain quite uncertain and depend on consumer demand, inventory levels, and sourcing strategies.
The latest data on US consumer spending showed some resilience, but while spending increased in April in some areas of retail, there was also a shift away from big ticket – and bulky – items like home goods, and concerns that rising interest rates will slow inflation but also push the economy into recession in H2 could dampen consumer demand just as freight approaches its typical peak months.
Another big driver for the current freight recession – despite relative strength in spending – has been overstocked inventories. And though major retailers are not all in the same boat, one of the biggest, Target, reported this week that inventories are under control and that they are gearing up for new ordering – a good sign for freight demand if this is also the case for enough other importers, and if demand holds up.
But Target executives also said they are focusing on “inventory efficiency” this year, which could mean a return to just in time importing, or as the Port of LA Director put it “a relatively short peak season between the months of September and October,” driven also by uncertainty around consumer demand.