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Sept 16th, 2016

Container traffic from Asia continues to fall short of forecasts, much as our domestic economy has growth at sluggish rates for several years, particularly the period of Jan-June 2016. According to the Wall Street Journal (8/29) U.S. port traffic is rather flat this year without signs of a summer peak, similar to 2015. The revised estimate for this year of a 2.2% increase in overall container traffic to the U.S. will be the slowest rate of increase since 2011, and many shipping lines have scrapped vessels and cut back on service on unprofitable routes. Shipping lines continue to have a large oversupply of vessels due to the 2009 global recession, and the eventual fulfillment of all orders in place for the construction of new vessels and containers in place at that time.

While container rates/costs have moderated throughout 2016, rates are now on the rise again, in large part due to the collapse of Hanjin Shipping (Korea), the 7th largest container line in the world which filed for bankruptcy on 9/2. Inbound rates are already surging and many vessels are held up in port, waiting for port contractors to be assured that they will be compensated for their work unloading containers. The Korean government is now involved and offering some guarantees. The picture below shows all of the Hanjin ships awaiting disposition as of 9/2.

Major retailers continue to trim inventory, contributing to the decline in the number of containers in use compared to forecast. Retailers have been carrying fewer inventories at the store level, in part due to the growth of online sales, and have put more products in the distribution chain awaiting disposition. To fill late season demand and last minute orders many will rely on expensive air freight.

Imported freight costs are expected to rise significantly well into 2017 based on these changing dynamics.

#current events#supply chain

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