Global Shipping Update: Modicum of Relief as Import Volumes Fall in Line with 2019 Levels
With the second quarter of 2023 on the horizon, importers and logistics service providers (LSPs) are wondering what lies ahead. The economic landscape is anything but predictable and there are conflicting opinions on what direction the economy will take. As for interest rates, they continue to decline but remain high. How is this uncertainty affecting supply chains?
IMPORT VOLUMES ALIGNING WITH PRE-PANDEMIC LEVELS
U.S. container import volumes are declining and shifting back into line with 2019 volumes, to a time before the global pandemic prompted an explosion of ecommerce demand and imports soared to unforeseen heights. Indeed, import volumes saw a significant drop in February, decreasing 16.2% from January 2023 to 1,734,272 TEUs (see Figure 1). Compared to February 2022, TEU volume was down 25.0%—but was only 0.3% lower than pre-pandemic February 2019.
While box imports continue to follow 2019 volumes, the volume decrease was the greatest of the last seven years, with the exception of February 2020 which marked the start of the pandemic (-17.9%). Notably, after an upward shift in January, Chinese imports into the U.S. returned to a downward trend in February 2023—a trend seen among all of the top countries of origin—with a volume decrease of 17.1% to 632,702 TEUs; China’s downward momentum represents a volume drop of 37.0% from the high in August 2022.
It’s worth noting that February’s volumes may be influenced by multiple factors, including the shorter duration of the month (28 days vs. 31 days in January) and the impact of January’s Chinese Lunar New Year, which would see volumes materialize in late February and early March 2023.
While overall U.S. container import volume for the Top 10 ports fell by 296,390 TEUs in February 2023 vs. January—all but the Port of Tacoma experienced declines—the volume share at top West Coast ports and top East and Gulf Coast ports remained relatively stable. West Coast ports decreased 2.8% while East and Gulf Coast ports increased 1.6% from January 2023. Compared to smaller ports, market share for the top 10 ports, however, has been steadily declining since mid-2022, with February 2023 representing the lowest share (82.8% of total volume) in the last year.
LESS VOLUME ≠ SHORTER WAIT TIMES
Despite fewer goods on the move, port transit delays increased for the top West, East and Gulf Coast ports, indicating ongoing supply chain turbulence. The West Coast ports are faring the worst, as transit times increased from 0.1 to 1.0 days in February compared to January 2023. With the exception of the Port of Long Beach, port transit delays for West Coast ports in February 2023 are now higher than in December 2022 (see Figure 2).
Figure 2: Monthly Average Transit Delays (in days) for the Top 10 Ports
Note: Descartes’ definition of port transit delay is the difference as measured in days between the Estimated Arrival Date, which is initially declared on the bill of lading, and the date when Descartes receives the CBP-processed bill of lading.
LINGERING DISRUPTIONS HINDERING FLOW OF GOODS
Whether it’s the long arm of COVID impacting manufacturing supply chains, or labor shortages and uncertainty complicating transport logistics, importers and LSPs continue to face barriers to supply chain performance. COVID continues to impact available supply chain and logistics resources and operations globally. China, in particular, has seen widespread COVID infections after rolling back its zero-COVID restrictions. While the loosening of the country’s pandemic policies was intended to minimize the longer-term disruptions to society and business, the Chinese population has little-to-no immunity and the impact of COVID on manufacturing supply chains could continue for quite some time.
On the labor front, members of the International Longshore and Warehouse Union (ILWU) have been working without a contract since July 1, 2022. While ILWU and the Pacific Maritime Association (PMA) recently announced that they “continue to negotiate and remain hopeful of reaching a deal soon,” negotiations for a new collective bargaining agreement—encompassing more than 22,000 dockworkers at 29 West Coast ports—has been dragging on since May 2022.
Adding further complexity to the uncertain labor situation, California’s new labor legislation AB5 remains a thorn in the side of the trucking industry, with the risk of future AB5-related stoppages at California ports. This continuing labor uncertainty may be a significant reason why import volumes are not shifting back to major California ports, despite their reduction in transit delay times over the last year plus.
Importers and LSPs would be wise to keep close tabs on the progress of the ILWU contract negotiations and monitor the impact of AB5 on owner-operators serving California ports for potential disruption or any degradation of container processing performance at the ports.
KEEPING AN EYE ON INFLATION INTO Q2
Companies are watching inflation rates closely as 2023 unfolds. Although the Consumer Price Index (CPI) rose 0.4% in February—slightly less than January’s 0.5% increase—inflation fell to 6% year-over-year, inching in the right direction towards the Fed’s 2% target. However, supercore inflation—representing the cost of services—rose by 0.2% last month and is up almost 7% from a year ago. For example, package delivery costs have risen 14.4% in the last year, as of February 2023.
According to the U.S. Energy Information Association, gasoline costs, a significant contributor to high inflation rates, decreased slightly in February to $3.34/gallon and somewhat stabilized. Diesel costs were also down slightly to $4.29/gallon, nearing February 2022 prices. Although stabilized, fuel costs are likely to remain elevated due to the disruption of global energy markets caused by the war in Ukraine and subsequent sanctions against Russia.
MANAGING SUPPLY CHAIN RISK
With the myriad of challenges impacting supply chain performance, importers and LSPs should stay proactive in their approach to designing and executing their logistics and supply chain strategy. In the short term, evaluating and understanding the impact of inflation and the Russia/Ukraine conflict on logistics costs and capacity constraints is critical for clearing a path ahead, while making sure key trading partners are not on sanctions lists mitigates potential penalties and further delays.
In the near term, importers and LSPs should focus on improving supply chain velocity, reliability, and predictability by looking for less congested transportation lanes, including smaller ports, and evaluating alternative transportation lanes into the U.S. To allay the risk of another logistics capacity crisis in the long term, companies may consider evaluating supplier and factory location density to minimize reliance on over-taxed trade lanes and regions of the globe that have the potential for conflict.
The February U.S. container import data demonstrates some consistency with pre-pandemic import volume seasonality and offers a measure of relief from the logistical challenges that have plagued operations over the past few years. Several factors, however, point to continuing challenges for global supply chain performance.
Despite declining import volumes, port transit times increased at West, East, and Gulf Coast ports, while unresolved labor-related issues may be keeping importers from moving volume back to the West Coast. Compounding factors, including the COVID-related impact on China’s manufacturing capacity, inflation, and the war in Ukraine continue to put pressure on supply chains and logistics operations. By closely monitoring these factors and taking steps to build long-term supply chain resilience, importers and LSPs can mitigate risk, improve supply chain reliability and velocity, and shore up the bottom line moving forward.