Logistics managers in the United States are gearing up for potential delivery delays of goods from China in early January. This situation has arisen due to the cancellation of sailings by container ships and export rollovers carried out by ocean carriers.
Carriers have been actively managing capacity by announcing more blank sailings and suspending services to balance supply and demand. The ongoing decrease in container freight rates from Asia, driven by a collapse in demand, is leading ocean carriers to implement more blank sailings than ever before, as vessel utilization reaches new lows, according to Joe Monaghan, CEO of Worldwide Logistics Group.
Recent data from the CNBC Supply Chain Heat Map indicates that U.S. manufacturing orders in China have declined by 40%. As a result, Worldwide Logistics Group anticipates that Chinese factories will shut down two weeks earlier than usual for the Chinese Lunar New Year. Next year, Chinese New Year’s Eve falls on January 21, and the seven days following the holiday are considered a national holiday.
According to supply chain research firm Project44, vessel TEU (twenty-foot equivalent unit) volume from China to the U.S. has decreased significantly since the end of the summer in 2022. There has been a 21% decline in total vessel container volume between August and November.
HLS, a global shipping firm based in Asia, has warned its clients about the current ocean transport business climate. It described the situation as challenging for the shipping industry due to declining demand and overcapacity as new tonnage enters the market.
Central banks, including the Federal Reserve, have begun raising interest rates to combat inflation, which has been driving down record-high supply chain prices. However, this monetary policy balancing act aims to avoid turning the supply-demand reset into a full-blown recession. Many CEOs are expressing concerns about the risk of a recession, citing weaker consumer trends and slowing sales. The market remains uncertain about whether the Federal Reserve can effectively manage inflation without causing a “hard landing” for the economy.
HLS analysts predict a further 2.5% decline in container volumes and an increase in capacity of nearly 5-6% in 2023. These factors are expected to continue putting downward pressure on freight rates throughout the year.
OL USA CEO Alan Baer noted early signs of an inventory correction. While overall business volume and order flow out of Asia remain subdued as carriers cancel more vessels, space may become limited in January and throughout the first quarter. The need to replenish inventory and restart the order and delivery cycle appears to be gradually increasing.
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