USA Freight Market Insights and Import Data 2022

The ports of Los Angeles and Long Beach have recently reported record throughputs in June, while on the other hand, the spot market price has been sinking. This contrast is too obvious: obviously the volume of the U.S. line compared with last year did not fall, but the market price compared with the same period last year has fallen nearly 10,000 U.S. dollars, why?

Since March this year, the industry's body feeling is that the volume of goods has not been up. This falling feeling has continued until now after various wishes have been crushed one by one, spreading pessimism about the future direction of the market. But is the volume of goods really low?

Not yet, at least not so far.

Here are the U.S. imports from Asia for each month from 2021 to 2022, by ETA (day of arrival). The data for July this year is incomplete and not put in for comparison. Asian exports to the U.S. grew 4% from January to June of this year. If you can't see the trend in total, let's look at it month by month. Except for March (two years of different timing of the Chinese New Year caused by changes in the volume of goods), other months year-on-year growth is obvious, especially in February, up to 14%, May-June growth began to slow down.

More interestingly, if you compare the two-year month-on-month (this month compared with the previous month) shipments, the change curve is basically the same, only the difference in the magnitude of fluctuations, which indicates that the pace of shipments each month this year and last year is still very close, there is no month of diametrically opposed trends.

If the overall volume of Asian shipments is not felt, look at the most concerned and most physical changes in the volume of China's U.S. routes. By June this year, the year-on-year increase was a modest 2%, with February (when shipments were made before the year) showing the most significant increase of 11%. March (also caused by the timing difference of the New Year) saw a 4% drop, and April saw essentially no growth. This is in contrast to the overall volume growth of 6% in Asia, indicating that shipments from China are significantly weaker than other Asian countries after the New Year. 3% year-on-year decline in May due to the impact of the epidemic, a decline significantly smaller than everyone's physical sense. By June (shipments in April-May), cargo volume picked up with a slight increase of 2%. On the one hand, Shanghai lost cargo to other terminals, and on the other hand, cargo from ports not affected by the epidemic grew a little.

The month-to-month curves of the two years show the same trend, but in 2021 the volume of goods in each month is very obvious up and down, just like a roller coaster. This year's month-over-month change in volume is not as dramatic as last year's, but in the five months from February to June, there were four month-over-month declines, and the volume is on a downhill trend.

After looking at China's data, how can you not look at Southeast Asia's? From January to June this year, U.S. imports from Southeast Asia grew by 6%, higher than China's growth. Each month-on-month growth was significant, especially February and April achieved 2-digit growth, May-June began to slow down, but still remained at 5%.

The month-over-month curve for Southeast Asia, 2022 and 2021 can be said to be highly consistent. february is less than january, march shipment surge, april falls back, may rise again, june falls again. may-june chain data is interesting. may-june ETA is equivalent to about april ETD (southeast Asia to the United States voyage is generally more than 20 days). april is in the domestic epidemic sealing period, at that time, there is concern that orders lost to southeast Asia. The year-over-year growth in Southeast Asia from May to June was 5%, and there was no sign of a surge in shipments. What's more telling is that the volume of shipments from Southeast Asia fell by 15% in June (ETA) compared to May this year! If there is a real loss of orders to Southeast Asia, June (ETA) should be a lot more than the volume of May. Also, the order is not to say that you want to transfer, even if the factory has previously cooperated, the newly added orders can not be immediately out. If it is a new factory, the order transfer takes longer. So far, shipments from Southeast Asia are following their own rhythm, not affected by the Chinese epidemic sealing control.

The question arises, since the overall cargo volume has not fallen, why the market price is falling?

I think there are three possible reasons：

Timing Differences

The record June cargo volume reported by the Long Beach terminal in Los Angeles is based on the arrival date, which is in the past tense, and the cargo that arrived in June was sent out in May. Similarly, the analysis of January-June volumes this year is based on arrival dates. For domestic operators, that's been a few months ago. Now the good news from the Long Beach terminal in Los Angeles is totally indifferent to the Asian exporters. If cargo volumes are down, it will take July/August for the terminals to feel the "pain" that they are still reveling in.

Past volumes, no matter how high, do not affect the current freight rates. Freight rates, like stock prices, reflect the future, not the past. Booking is usually 2-3 weeks in advance, and now we have already started to book ships around mid-August. The forecast of future cargo volume and everyone's forecast of the market will influence and determine the price in August. So far, the forecast for mid-August is not good and there is no sign of peak season in the market, so the rates are still sinking.

Changes in the comparison between shipping capacity and volume

When will freight rates go up? Will it go up when the ship is full? Not necessarily.

If the loading rate is maintained at about 95%-100%, shipping companies have no pressure to fill ships, and the freight rate is relatively stable, but it doesn't mean that the price can go up, because the space is basically satisfied and the market space can't be speculated. Everyone can get the space, how to speculate?

When the market volume is 150% or even 200% of the space, the feeling of space shortage is strong, space speculation space is large. At this time, although the actual volume of cargo is only 2 times of the space, customers will book with several different companies for the same ticket because they are worried about not getting the space, resulting in the booking volume is magnified several times, the feeling of space shortage is more obvious. From the shipping company's point of view, the volume of booking is 400% of the space. With such a hot market, the shipping company's confidence to increase the price is greatly increased. In other words, as long as the booking volume is 150% of the capacity or higher, the possibility of price increase will be greatly increased.

What is the current situation of bookings and slots? It feels like it is hovering between 90-100%. If the main shipping lines were not worried about full ships in April and May, some of them have obviously increased their efforts to collect cargo since June. Some shipping companies have a small proportion of direct customers and rely more on the market spot price to collect cargoes. Once the pressure to fill the ship to lower the freight rate, the downward pressure on the overall market freight rate. The spot rate of shipping companies is also a weather vane to judge the direction of market freight, it is a favorable tool for shipping companies to regulate market freight: when shipping companies judge the future market is bad, they will lower the spot rate, so that they can collect more cargo from the market; when they expect the position will be burst, the spot rate will be increased.

In the case that the overall cargo volume remains the same as the same period last year, why did the cargo volume last year feel like 500% of the space, while this year it feels like it can't even fill the ship? This may be related to the actual capacity change, in 2021 the capacity of the U.S. line in 2020 based on a large increase, 2022 basically inherited the high capacity of 2021, the shipping company only some minor adjustments. The difference lies in the efficient use of this capacity. The congestion that started in the third quarter of last year absorbed some of the capacity and the effective capacity of the market dropped, despite putting more ships on board. This is why the cargo volume in the third quarter of last year could not go up anymore, not because there was no cargo, but because of the congestion, the terminal and land transport capacity had reached the limit, and the cargo volume could not go up even if more ships came, because there was less capacity to turn up instead.                  

And this year's situation is different. Since the second quarter, the Los Angeles port of congestion has improved, waiting time for berthing from the worst more than 30 days, down to less than 10 days, and then down to 3-4 days. What was 60-80 days to run a round trip is now 40-50 days away. Although the same number of vessels are put into service, because of the easing of congestion and faster vessel turnover, the effective capacity is increased compared to last year. The same amount of cargo, compared with the increase in effective capacity, the ratio of booking and capacity has become lower, not only does not have the feeling of peak season, but also worried that the ship is not enough, naturally it is difficult to raise prices.

East Coast's share of the role

Last year the most explosive is undoubtedly the U.S. West, although the U.S. East has also been in the high price. There are not many terminals in the U.S. West, Los Angeles, Long Beach is the largest, Seattle, Tacoma port local consumption hinterland is small, too far from South Canada, is not the port of discharge of South Canada warehouses, Oakland's handling capacity is small, as long as slightly moved from Los Angeles some ships over, immediately blocked. Last year, Oakland port experienced several round trips.

Because of the congestion in the US West, some shipping companies shifted some routes to the US East in the fourth quarter of last year. But before that, most of the ships still run to the U.S. Southwest, resulting in continued congestion, space constraints, high freight rates. This year, the situation has changed. Because of the fear of the U.S. West terminal strike, early customers consciously transfer part of the cargo to the East Coast to reduce risk. The "going east" that lasted for several months thinned the cargo volume of the U.S. West terminal and reduced the number of ships waiting for berthing and time. At the same time, because there are many terminals in the U.S. East (at least 10 in the U.S. East + Gulf of Mexico), the congestion will not be concentrated in one terminal, and the physical feeling of congestion is not as strong as in the U.S. West. The same import volume, spread out to more terminals (U.S. East + Gulf of Mexico), the feeling of congestion is diluted.

It is true that the volume of cargo has not fallen, but it only represents the past. Freight rates reflect the future, and there are still many unfavorable factors ahead: high inventories in US retail, record high inflation again, another Fed rate hike expected this week, and a lack of momentum in late demand growth. The current congestion in the land transport section of the US West is increasing and the liquidity at the terminals is deteriorating. If the situation continues, it is likely to backfire on ship loading and unloading, which in turn will slow down the ship schedule and cause a reduction in capacity. With the demand side expected to become weaker, will failure on the supply side be the hope to maintain freight rates?