Strong Global Demand, Rail Challenges, and US Market Volatility

This week’s market update explores key trends shaping global trade and logistics. Global container volumes recorded significant growth in early 2024, reflecting rising demand for shipping services, while a sharp increase in trans-Pacific spot rates is driving urgency in contract negotiations. Simultaneously, import surges at the Ports of Los Angeles and Long Beach are creating rail backlogs, impacting inland transportation flows. On the India-US route, spot rates are declining as additional capacity enters the market, increasing competition among carriers. Rail executives remain optimistic about intermodal shipping, reinforcing its long-term value despite ongoing financial pressures. These developments highlight the need for agile strategies to navigate shifting market conditions and capacity challenges.

Strong Global Container Volume Growth in Early 2024

• Recent research shows that the there is a strong global container volume growth, particularly in January and February 2024.
• Year-on-year growth in Jan/Feb 2024 was more than 10%, primarily due to a comparison with a low market in the same period in 2023.
• The analysis compares growth rates to pre-pandemic levels in 2018 and 2019 to gauge market strength.
• Strong container volume growth indicates increased demand for shipping services, potentially leading to higher capacity utilization.
• Volatility in monthly growth rates and uncertainty surrounding market strength may impact carrier strategies, such as capacity management such as employing blank sailing and different pricing policies.
• Rising demand for shipping services, coupled with potential capacity constraints, could lead to upward pressure on freight rates, which is further accelerated due to the peak season.

Tepid US Consumer Confidence Affects Clothing Imports

• Tepid US consumer confidence impacts clothing imports, influencing shipping demand and capacity utilization in the ocean freight market.
• Despite rising consumer demand for imported apparel and footwear in 2024, retailers remain cautious due to concerns about overstocking, stemming from excess inventory clearance efforts.
• This cautious approach by retailers leads to fluctuating shipping demand, as they balance the uptick in consumer demand with the need to manage inventory levels carefully.
• Fluctuations in shipping demand affect capacity utilization and freight rates in the ocean freight market, with potential implications for carriers and logistics providers.
• Volatility in freight rates underscores the importance of agile supply chain management strategies to adapt to changing market conditions while mitigating risks associated with uncertain consumer confidence.

Soaring Trans-Pacific Spot Rates Prompt Urgency in Service Contract Talks

• Importers risk higher shipping costs if they don’t finalize contracts quickly due to rising spot rates.
• A big spike in trans-Pacific spot rates that may take hold starting in May is pushing mid-size US importers who have yet to finalize their 2024–25 service contracts to sign those deals quickly.
• FAK rates sought by carriers are set to increase more than $1,000 per FEU based on May 1 & May 15 general rate increases (GRIs) filed last month by most of the liners in the eastbound trans-Pacific.
• Mid-size importers, in particular, may face challenges in negotiating favorable contract terms amidst rapidly changing market conditions and escalating spot rates.
• Importers need to assess their risk exposure and explore options for mitigating potential cost increases, such as securing longer-term contracts or diversifying transportation strategies.

Import Surge Leads to Rail Container Backlogs at LA-LB Terminals

• Import surges at ports like Los Angeles and Long Beach may strain rail container capacities, affecting inland transportation networks.
• Rail container backlogs are mounting at some marine terminals at the ports of Los Angeles and Long Beach amid a surge in imports from Asia.
• The surge in imports from Asia is driving a sharp increase in eastbound intermodal train movements, exacerbating a chronic deficit of railcars returning westbound.
• Yusen Terminals in Los Angeles is already holding twice its normal inventory of rail containers, indicating the scale of the backlog.
• To prevent the backlog from interfering with cargo handling operations, some containers are being drayed to a near-dock storage yard.
• The utilization of near-dock storage space highlights the severity of the situation and the need for creative solutions to manage the backlog effectively.
• Increased dwell times and congestion at rail terminals can potentially lead to delays in the movement of goods in the coming few weeks.

Rail Executives Maintain Support for Intermodal Business Despite Margin Concerns

• Rail executives support intermodal business despite concerns over margins, indicating a long-term commitment to containerized shipping.
• Despite concerns raised by Wall Street investors regarding lower margins associated with intermodal business, rail executives remain steadfast in their commitment to this segment of transportation.
• The debate over financial metrics versus providing dependable service has been intensifying in recent years, with activist investors challenging the priorities of Class I railroads.
• Rail executives recognize the long-term value of containerized shipping in supporting economic growth and meeting customer demand for efficient transportation solutions.

Capacity Injection Lowers India-US Spot Rates for May Sailings

• Capacity injection on India-US trade routes leads to lower spot rates, reflecting market dynamics and competitive pressures.
• New services like the West India-North America Express (WIN) service may impact spot rates and competition among carriers.
• This decline in spot rates is attributed to the introduction of new capacity on the India-US trade routes, resulting in increased competition among carriers.
• The WIN service, set to commence at Nhava Sheva with a May 12 call from the ONE Modern vessel, represents a significant addition to the trade route.
• The nine-vessel weekly loop, which includes slot charter space from HMM, offers enhanced connectivity and frequency for shippers operating between India and North America.
• Ports of call on the Indian leg of the WIN service include Hazira and Mundra, highlighting the strategic significance of these terminals in facilitating trade flows.
• Data obtained indicates a notable increase in shipper bookings on the new WIN service, underscoring the demand for reliable and efficient transportation solutions in the India-US trade lane.

Industry Trends