Aerial photo of containers standing stacked at Qinzhou Port in Qinzhou, China’s Guangxi Zhuang Autonomous Region, 15 August 2022.
China news service | Getty Images
US logistics managers expect delays in the delivery of goods from China in early January due to canceled container ship departures and rollovers of exports by shipping companies.
Airlines have implemented an active capacity management strategy, announcing more empty runs and suspending services to balance supply and demand. “The inexorable decline in container freight rates from Asia, driven by a slump in demand, is forcing ocean carriers to cancel more trips than ever before as vessel utilization hits new lows,” said Joe Monaghan, CEO of Worldwide Logistics Group.
U.S. manufacturing orders in China have fallen 40 percent, according to the latest CNBC Supply Chain Heat Map data. As a result of the drop in orders, Worldwide Logistics tells CNBC that Chinese factories will close two weeks earlier than usual for the Chinese New Year – Chinese New Year’s Eve falls on January 21 next year. The seven days after the holiday are considered a national holiday.
“Many of the manufacturers will be closing for the holiday in early January, which is much earlier than last year,” Monaghan said.
Supply chain research firm Project44 told CNBC that China-to-US vessel TEU (twenty-foot equivalent unit) volume has declined significantly since late summer 2022, after hitting record-breaking trade levels during the pandemic lockdown — including a 21% drop of the total shipping container volume between August and November.
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Asia-based global shipping company HLS warned customers about the business climate in ocean transport in a recent statement.
“It seems to be a very bad time for the shipping industry. We have the combination of falling demand and overcapacity as new tonnage enters the market,” it wrote.
HLS analysts forecast a further 2.5% decline in container volume and an almost 5-6% increase in capacity in 2023, which will also negatively impact freight rates in 2023.
“The container shipping market is further complicated by economic uncertainty, geopolitical concerns and also increasingly heated market competition,” HLS wrote.
OL USA CEO Alan Baer told CNBC that there are some early signs of an inventory correction. Overall business volumes and order flow from Asia remain subdued as airlines cancel more ships and little upside momentum leading up to Chinese New Year. But Baer said: “Space has already become tight so while demand is weak, space could be tight in January and throughout the first quarter. On the plus side, inventory depletion and the need to restart the ordering and delivery cycle appear to be slowly picking up.”
Ports on the west coast of the US have been hit the hardest
HLS cites trade data showing US imports from Asia fell to their lowest level in 20 months in October. The spot rate for a container from Asia to the US west coast has broken even, “with little room for further reductions,” it said.
The major west coast ports of Los Angeles and Long Beach have seen the biggest drop in trade, according to Josh Brazil, vice president of supply chain insights at Project44, as shippers have also diverted some of their shipments to the east coast to avoid the risk of a major union strike at ports at the West Coast.
HLS expects most airlines to extend their West Coast fares through Dec. 14, holding them at $1,300 to $1,400 per 40-foot equivalent container (FEU). However, rates on the US East Coast are expected to drop by $200 or $300 to an average of $3,200-$3,300 per FEU in the first half of December.
The recent surge in Covid lockdowns in China continues to impact manufacturing operations and delay freight spending. There are also local access barriers for inter-provincial and inter-city transportation, mainly related to truck driver testing requirements, severely affecting truck capacity.
Battle for ship space, cargo overturning and slow trucking are tracked by CNBC Supply Chain Heat Map.
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Empty (cancelled) sailing data shows that vessel capacity reductions on the transpacific (China to US) route are continuing at a significant pace. The 2M Alliance of Maersk and MSC has suspended almost half of its US West Coast services for December. The Ocean Alliance (CMA CGM, Cosco Shipping, OOCL and Evergreen) and THE Alliance (Ocean Network Express, Hapag-Lloyd, HMM and Yang Ming Line) have reduced total ship capacity by 40-50% until Chinese New Year.
As a result, shippers are viewed as running out of space for cargo destined for the Pacific Southwest route, and service reliability has declined as airlines such as MSC and Hapag-Lloyd wheel (not accept) cargo on crossings to make up time. According to logistics managers, this will result in a two-week delay. MSC said in its latest notice to customers, “ETAs are indicative and are subject to change without notice.”
The drop in manufacturing orders from the US and EU is also affecting Vietnam, which is booming as a manufacturing hub as more trade is diverted from China.
According to the Vietnam General Statistics Office report, 12,500 businesses have been closed per month since the beginning of this year, up 24.8% year-on-year. The combination of missing manufacturing orders and borrowing rates, which rose to 13.2% from 6.5% in Vietnam, led many companies to close factories rather than sign new contract contracts, according to the HLS. Canceled sea crossings to Vietnam up 50% in December.
Surprising increase in European production
In contrast to the drop in orders from China, trade data analyzed by Project44 suggests the Europe-US route is “one of the possibly most surprising and certainly significant developments since early 2020,” Brazil said.
“This strong increase cannot be explained by the pandemic alone. But a strategic shift from over-reliance on trade with China and geopolitical tensions around Russia are the main drivers of the EU-US trade boom,” he said.
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The global trade map is rapidly being redrawn, with EU-US trade and US investment soaring as Western-China economic relations come under critical scrutiny. This year, the US imported more goods from Europe than China – a big change from the 2010s, according to Project 44.
“For their part, European manufacturers, struggling with sky-high energy prices and inflation, are increasingly exporting to and investing in the US,” Brazil said.
Germany’s exports to the US in September were almost 50% higher than a year earlier. According to Project 44, the German engineering sector increased its exports to the US by almost 20% year-on-year in the first nine months of 2022.
The CNBC Supply Chain Heat Map data providers are Everstream Analytics, an artificial intelligence and predictive analytics company; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics service provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third party logistics provider Orient Star Group; global maritime analytics provider MarineTraffic; project44 for maritime visibility data; maritime data company MDS Transmodal UK; Xeneta sea and air rate benchmarking and market analysis platform; leading provider of research and analysis Sea-Intelligence ApS; crane global logistics; DHL Global Forwarding; freight logistics provider Seko Logistics; Planet, provider of global, daily satellite imagery and geospatial solutions, and ITS Logistics provide port and rail transportation services at 22 coastal ports and 30 rail ramps throughout North America.