This week:

• West Coast labor contract negotiations continue with promising signs of progress 
• Declines in US imports are expected to slow down in the third quarter 
• Air cargo rates reach a three-year low due to low demand and overcapacity 
• A new bill brought before the House of Representatives aims at further reducing shipping emissions by 2040 
• Analysts predict that US truckload spot rates will soon bottom out 

The Port of LA-LB Clears Its Vessel Backlog, a Promising Sign for West Coast Negotiations

A vessel backlog that began to build at the start of last week at the ports of Los Angeles and Long Beach due to reduced longshore labor was cleared on Friday. While International Longshore and Warehouse Union (ILWU) locals in Southern California refused to dispatch enough lashers last week, leading to the vessel backlog, the increase in available lashers and labor at the end of the week is a sign that the now thirteen-month-long West Coast contract negotiations between ILWU and the Pacific Maritime Association (PMA) are seeing progress. 

Other ports in California, such as Oakland, returned to normal operations by the end of last week. However, Seattle and Tacoma were still experiencing job actions from dock workers, slowing down port operations. Crane productivity, in particular, fell to around 10% of normal operations. Last Friday marked the third consecutive day that the ILWU and PMA held contract negotiations, which normally only occurred once a week, marking a shift in progress.

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US Import Declines Will Slow in the Third Quarter of 2023

The first half of 2023 saw a 22.3% decline in US container imports compared with the first half of 2022 due to reduced consumer spending. According to the National Retail Federation, that difference will begin to close in the third quarter of this year as retailers start making their back-to-school and seasonal product ordering. 

US container import estimates for May and June this year are approximately 23% and 15% lower than the rates for the same periods in 2022, meaning container imports for the first half of the year will total roughly 10.5 million TEU. Global Port Tracker (GPT) predicts that the third quarter of the year will see 5.96 million TEUs, 7.8% lower than the previous year. But with West Coast longshore contract negotiations still taking place, experts warn that port and supply chain disruptions may interfere with the coming predicted import spike.

Air Cargo Rates Hit a Three-Year Low

Low demand combined with high air capacity has led to air cargo rates out of Asia falling to their lowest levels in three years, with analysts predicting that demand likely won’t pick up until the fourth quarter. Cargo rates are expected to trough this Summer as capacity continues to enter the market, largely due to seasonal passenger travel demand. Average spot rates for the week ending June 4 from Shanghai to North Europe fell to just $3.02/kg, 57% lower than the same period a year ago and the lowest since March 2020. 

Rates from Shanghai to North America were 51% lower across the same period, averaging $4.36/kg, also the lowest rate on this lane since March 2020. Compared with pre-pandemic data, these spot rates to North Europe and North America are actually up by 21% and 27%, respectively.

Reintroduced Clean Shipping Act Could Further Reduce Shipping Emissions

The Clean Shipping Act, a rewrite of a bill brought before the House of Representatives last year, is being introduced once again in the 2023 legislative season. The bill aims to include commercial shipping emissions under the 1963 US Clean Air Act and has the support of Maersk’s North American Chief of environmental initiatives. Should the bill pass, commercial vessels that call the US would be subject to stricter limits for carbon dioxide emissions, with the goal of 2040 emissions being 100% less than those in 2024.

US Truckload Spot Rates Will Soon Bottom Out According to Analysts

Analysts predict that US truckload spot rates will soon bottom out before rising, indicating a crucial time for shippers to lock in their 2023 contracts. Spot market rates rose slightly in May, and although the Journal of Commerce Shipper Truckload Spot Rate Index technically fell by two cents in May to $2.38/mile unweighted and $2.23/mile on a weighted basis, the remaining linehaul rate actually rose by a fraction after the exclusion of fuel surcharges. Rates in produce states such as California, Georgia, Florida, North Carolina, and South Carolina saw sequential increases in May. In California, rates rose by $0.13 from April to May. 

Data from DAT Freight Analytics also showed that rates on the 50 highest-volume US freight lanes increased by more than $0.20 in the second half of May. Analysts forecast the truckload spot market will reach its bottom in the third quarter. 

The diversion of discretionary cargo away from the West Coast has led to many importers of Asian-made goods favoring ports in the Southeast, Savannah in particular. 2022’s Asia import volume only decreased by 0.3% after 2021’s 13.5% spike, however, the Southeast’s market share rose by 1.1% from 19.8% to 20.9% between these two years, a 5.2% volume increase, while the West Coast’s market share dropped from 59.9% to 56.4%.

Savannah led the Southeast ports with a market share increase of 0.7% to an 11.1% total, increasing the port’s import volume by 6.1%. Charleston followed suit with a market share increase of 0.5% to a market share of 3.8% after a 14.6% spike in shipment volume.

Although it remains to be seen whether the Southeast will maintain its market share after ILWU contract negotiations finish, the Southeast ports are a gateway to North and South Caroline, Georgia, Tennessee, and Florida. And as Southeastern ports get more upgrades and improved supply chain infrastructure investments, shippers may prefer to send imports from Asia directly to the Southeast ports rather than to the West Coast, where they must make the intermodal journey across the country.

(Source: Jason Leung | Unsplash)