Cockeyed Optimism

The surge in imports may be a triumph of hope over reality.

By Bill Armbruster
Have U.S. importers been too optimistic about growth prospects in the U.S. this year?

I think so — and I think that helps explain why there such was a mad scramble for container space out of China in January and the first half of February. Sure, importers wanted to get their goods on the water before factories shut down for a week or two during the Chinese New Year, which began Feb. 14. But there’s always a rush before Chinese New Year. This year’s frenzy was unprecedented.

The chaos was largely due to carriers’ cutbacks in capacity, as I discussed in my last blog entry. In fairness to the carriers, they were caught off guard by the surge in demand. Part of the reason for that surge was the need for importers to replenish inventories. Merchandise was flying off their shelves, so it was natural to feel that they had to step up their orders.

A Bureau of Economic Analysis report showing that personal spending in January was up 0.5% over December — seems to add ground for that sense of optimism. However, that same report shows that disposable personal income – what’s left after taxes — was down 0.4% in January.
Another disappointing indicator was February’s sharp decline in consumer confidence. After rising for three straight months, the Conference Board Consumer Confidence Index dropped to 46.0, down from 56.5 in January.

Meanwhile, the housing market isn’t looking any better. Existing-home sales fell in January, and the market could be in for a rough ride once the home buyer tax credits end on April 30, according to the National Association of Realtors. Housing is a major driver of the import market because people tend to buy more home furnishings when they are moving into a new home. In addition, no meaningful recovery in commercial real estate is expected before 2011.

Most analysts are forecasting 8 to 10% increases in import containers this year, although the Port Tracker report for February, prepared by Hackett Associates and the National Retail Federation, projected that retail container imports would be up 25% in the first half of 2010. Look for that projection to come down to about 15% in this month’s Port Tracker, but it still seems wildly incongruous with the NRF’s forecast that retail sales will grow just 2.5 percent this year.

As for the data on container trade, The Datamyne’s figures show just a 2.8% increase in arrivals of container imports from China in January. Final figures for February will not be available until March 15, but preliminary figures show an increase of about 12 to 13%. I would not be surprised if it’s even higher. Watch this space for the final tally.

I’ve let you know what I think, but what do you think about the container market this year? Please post your comments below.




About Bill Armbruster

Bill Armbruster, the anchor for The Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write to Bill@TheDatamyne.com

The Big Squeeze

Coping with capacity shortages and rising rates

By Bill Armbruster

The Problems:

• Shippers are facing severe shortages of vessel capacity. Even some who have booked shipments weeks in advance and who are regular customers have had their containers “rolled” at the piers because container carriers are giving priority to bigger customers and/or those who are willing to pay more.

• Carriers are demanding – and getting – hundreds of dollars in rate increases, regardless of the rates they agreed to in contracts signed last year. Carriers in the trade from Asia to the U.S., for example, posted “emergency recovery charges” of up to $400 a box. Space was so tight in the weeks prior to Chinese New Year that some imposed an extra $200 a container just to guarantee that the shipment moved on the booked voyage.

• Besides the shortage of vessel space, there is also a shortage of containers. Carriers have slashed intermodal service so that shippers, particularly exporters in the U.S. interior, have to make their own arrangements with truckers or railroads to move their cargo to the port. This can cost upwards of $2,000.


The Cause:

In order to raise rates, carriers reduced the supply of capacity by laying up their own ships, returning chartered vessels to their owners, by slow steaming, by eliminating services, and through vessel-sharing agreements.

The Background:

Carriers’ bottom lines have taken a huge hit over the past few years. I see four reasons for their plight. The first two are their own fault.

• The Great Recession. With the biggest contraction in trade since World War II, cargo volumes tumbled in 2008 and 2009. The plunge in imports especially hurt the carriers’ bottom lines because their rates on finished goods, which dominate imports, are much higher than the low-value commodities such as waste paper, scrap metal and hay that dominate U.S. containerized exports.

• Billion-dollar buying binges. Carriers invested massive amounts of money on large new vessels – enough to double the capacity of the world container fleet by 2013.

• The race to the bottom. In a desperate bid to get whatever revenue they could, carriers slashed rates by hundreds of dollars a container – even when shippers didn’t ask them to do it.

• Bunker busters. Soaring oil prices, which topped off at $147 a barrel in mid-2007, sent bunker fuel costs so high that for a while they accounted for more than half of voyage operating costs.

What Shippers Can Do:

Unfortunately, the options are limited, given the carriers’ success in tilting the supply-and-demand equation in their favor. But here are some ideas:

• Plan ahead. Try to determine your future needs.

• Communicate those needs to your carriers.

• Book your cargo early – perhaps even four to six weeks in advance.

• Be flexible. For example, consider alternative ports even if the inland transportation will be more expensive.

• Work with your truckers, and perhaps with other shippers in your region. For example, if you’re an exporter based in the U.S interior, you may find a trucker who is delivering import containers to a site near your facility. Perhaps the trucker can deliver that container to your facility and then carry your cargo in that container back to the port. You may be able to split the extra cost for the inland move with an importer.

• Inform your customers that your shipment may be late reaching them. Also tell them that your transportation costs are rising, and that you may want them to share in that extra cost.

• Finally, be realistic. Accept that you are going to have to pay more and that you may have to face some delays.


About Bill Armbruster

Bill Armbruster, the anchor for The Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write to Bill@TheDatamyne.com