NEWS & BLOG
Views: 11 Author: Site Editor Publish Time: 2022-08-30 Origin: Site
How to develop a more resilient sourcing strategy amidst global supply chain turmoil? With freight rates on the decline, should shippers reopen negotiations? Xeneta Principal Analyst Peter Sand and Market Analyst Emily Stausbøll provide the following analysis of the current ocean freight market.
While U.S. retail sales have maintained their upward trend, performing strongly for several months in a row and above levels seen at any time before the epidemic, this is associated with high inflation, with consumers spending less on the same goods at the same price. While retail sales are measured in value, quantity is more important than value for transportation purposes. Therefore, if consumers are buying fewer goods, it means that less capacity is needed to transport those goods.
Another issue Stausbøll mentioned is where consumers are spending their money. "We have the highest growth rate in spending on food and gas, goods that have traditionally been imported in very few containers. In contrast, traditional containerized imports are growing at a much slower rate, coinciding with the rate of inflation. This suggests that sales of furniture, electronics and other goods imported into the U.S. from the Far East are actually essentially flat, taking inflation into account."
Xeneta analysts believe that the effects of geopolitics will continue in some form or another. The types of events that have occurred over the last year and the past few months are bound to have short- and long-term effects on the supply chain.
In the long run, how is it most beneficial to build your own supply chain? Is it better to choose the cheapest logistics option or to consider local partnerships? Should you look for familiar locations while expanding, or avoid areas where a crisis like the one in Russia and Ukraine may occur? These are all questions that shippers need to weigh up. Shippers are advised to keep a close eye on regions where freight rates are affected by geopolitics in the short term, so that they can plan their business logistics in advance and try to avoid freight delays if the situation deteriorates.
Keep all of the above factors in mind when bidding on long-term contracts for the next year, as failure to take them into account may reveal that freight purchasing decisions made lack sufficient data to support them.
Shippers have more to consider today than they did a year ago, when signing a one-year contract was a breeze, as the market as a whole moved upward and both spot and long-term agreement rates continued to rise.
The current situation is quite different. Shippers may be considering ways to shorten the term of their contracts to get more cargo into the spot market, which may conflict with the desire of many carriers to lock in more container volume in long-term contracts.
When spot prices are lower than LTA prices, should shippers return to the negotiating table and add terms to LTAs signed 1 or 6 months ago?
Xeneta suggests that regardless of where the new rate equilibrium point is, shippers need to secure their most important trade routes and the lowest value for the required volume and find the right carrier.
Congestion at major UK and EU terminals is causing concern for carriers, freight forwarders and shippers. Port congestion is set to worsen with strikes by dock workers in Felixstowe, UK and a shortage of truckers in the port of Bremerhaven in northern Germany.
Low water levels on the Rhine are slowly improving, but a shortage of barges and forced reductions in loading volumes are causing port congestion and vessel delays. Meanwhile, other modes of transport in the Rotterdam hinterland, such as truck and rail, are under increasing pressure.
The gap between current spot rates and long-term agreement rates is narrowing, and the spread between the Far East to the US East and the US West routes has also reached a new record at just under US$3,200. While U.S. import volumes remain strong, with increasing volumes entering the continental U.S. from the East Coast, Gulf of Mexico and West Coast, the narrowing spreads indicate that retail volumes are unable to maintain high growth.
Peak seasons usually bring high volumes, but this year is different, with volumes in the second half of the year likely to be lower than the first half for the first time ever. Global shipping volumes are currently down 1.8%, and if second-half volumes are lower than first-half volumes, annual shipping volumes will be down 2.7%.
Current global inflation and geopolitical factors are causing significant headwinds for the global economy. Therefore, changes in demand will need to be closely monitored over the next one to two quarters.