2021 Outlook for Importing From China

Worldwide delivery in 2021 continues proper the place 2020 left off. That sentence sounds apparent, however what it means is an irregular begin to the yr in the case of ocean freight delivery, and transpacific delivery specifically. Excessive demand, excessive freight charges, and excessive port congestion can all be anticipated to begin the yr.

2020’s Lead As much as 2021’s Worldwide Delivery

2020 ended with excessive demand in ocean freight delivery, extreme port congestion, trucker shortages, and shortages of kit – delivery containers specifically – making issues troublesome for U.S. shippers. Issues acquired so dangerous, one in every of our final weblog posts of the yr was an alert to shippers, warning them to count on charges and delays.

Whereas 2020 had decrease than regular transpacific demand early within the yr because of pandemic reactions, demand by no means dropped as little as initially anticipated. It actually didn’t drop as little as ocean freight carriers anticipated, as they dropped capability nicely beneath market demand with a whole bunch of blanked (cancelled) sailings. Regardless of some lower in demand that was taking place, freight charges rose, after which demand boomed, sending freight charges hovering to report highs whereas service reliability sank to horrible lows.

The 2020 peak season that many predicted wouldn’t exist turned out to be extraordinarily robust and didn’t dwindle when the height season normally wraps up. Taking a look at Common Cargo’s cargo numbers, which I usually use as a barometer for the trade, after a powerful October, November and December each noticed beneficial properties in cargo counts from the earlier months. When all was mentioned and executed, December’s cargo depend was nearly an identical to August and September’s counts, that are historically the 2 largest months of the yr for transpacific delivery. September had one much less cargo than August, and December had solely three fewer than September had. Moreover, if not for the horrible port congestion, December would have had extra shipments.

That finish of the yr demand nicely outpaced the tip of 2018, when shippers who import from China had been delivery closely on the finish of the yr to beat a January 1st, tariff hike of 25%. Not solely is that this worldwide delivery demand abnormally excessive, it’s from precise items demand from American spending quite than preemptive delivery due to a commerce battle. Which means the elevated demand doesn’t all of the sudden finish with the brand new yr however ought to proceed on right here in 2021.

Continued Excessive Demand in Early 2021

With COVID restrictions persevering with and one other spherical of stimulus from the federal authorities going down, American spending stays robust in the case of items. Which means transpacific delivery demand will stay excessive in the intervening time. Trade professionals can even see different markers to verify demand remains to be robust right here firstly of 2021. Take a look at this excerpt from a Invoice Mongelluzzo-written article revealed New Yr’s Eve by the Journal of Commerce (JOC):

[Alan Murphy, CEO of Sea-Intelligence Maritime Analysis] projected that the expansion seen within the “prolonged peak” of final summer time and fall will truly speed up in early 2021, given the elevated vessel capability carriers are deploying into the brand new yr. “Deployed capability is dictated by demand,” he mentioned in Sea-Intelligence’s Sunday Highlight e-newsletter.

As talked about earlier, capability is just not an ideal indicator of demand, as carriers shrank capability beneath what market demand dictated within the first half of 2020. Nevertheless, carriers’ current push to manage capability and self-discipline to keep away from overcapacity makes the rise of capability they’re presently setting up an excellent higher indicator that demand actually is remaining robust, as consultants are projecting.

Right here’s the added capability Mongelluzzo shares within the JOC:

In an effort to accommodate the rising cargo volumes and the e-commerce necessities for velocity to market, trans-Pacific carriers within the second half of 2020 launched three new weekly companies, and these strings continued to function into the brand new yr. Matson Navigation Co. added a second loop from China to Lengthy Seaside, and Mediterranean Delivery Co. launched its Santana service from China to Lengthy Seaside. CMA CGM added a premium service from China to Los Angeles.

How Will We Be In a position to Inform When Demand Dampens Once more?

Usually, U.S. importing demand is pretty weak this time of yr, with a small surge forward of the Chinese language New Yr in February. With final yr’s demand beginning a bit weaker than ordinary, this yr’s unusually robust demand ought to create extremely excessive year-over-year comparisons. If within the first few months of 2021 year-over-year comparisons for a month are solely reasonably than stronger than 2020, that might be an excellent indicator demand is slowing again down.

Usually, freight charges are extremely unstable within the worldwide delivery trade and reply strongly to will increase and reduces in demand. Nevertheless, carriers proved in 2020 that they will make the most of their alliances to manage capability and maintain freight charges excessive even when demand falls. That makes freight charges a poorer indicator of demand than it has been previously (and conversely, demand a poorer indicator of freight charges than it’s been previously).

Whereas freight charges shouldn’t be ignored in conversations about worldwide delivery demand, capability bulletins (like including or blanking sailings), tendencies in quantity development or decline, and ordering of delivery containers and different gear are turning into higher components for predicting demand. Proper now, consultants expect demand to remain robust no less than via January and certain via February and March. Nevertheless, rather a lot can occur within the first quarter of the yr.

Conclusion

It’ll probably take a while for ports, and the provision chain as a complete, to get better from the congestion and disruption we’ve been seeing. Continued excessive demand clearly doesn’t assist in these endeavors however neither do COVID-19 lockdowns or protocols that restrict hours of operation, numbers of staff, and productiveness at factors all through the provision chain.

With the excessive demand no less than via January and really probably longer, freight charges are anticipated to stay excessive. Concurrently, low availability of truckers and congestion on the ports continues to place shippers vulnerable to being hit with unfair demurrage and detention charges, one thing the FMC is investigating and urged to take motion to cease.