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Half of trans-Pac capacity faces Lunar New Year cut
Ocean carriers are adjusting to the reality of declining consumer demand in the US and spot rates nearing three-year lows. Therefore, blank sailings on the eastbound trans-Pacific are set to rise to “massive” levels.
Carriers plan to cut roughly half of trans-Pacific vessel capacity in the aftermath of China’s upcoming Lunar New Year holiday. However, more blank sailing could be coming given the accelerating decline in US import demand.
31 of 71 trans-Pacific sailings to North America will be blanked between January 30th and February 5th. That amounts to a 50% capacity cut during the fifth week of 2023.
The blankings are a response to weak demand forecasts. The NRF forecasts that US imports in February will be the lowest in almost three years. Imports will decline by double-digit percentages YoY for each month through May. Withdrawing capacity will also help carriers restore schedule reliability.
The capacity cuts also come as ocean freight rates hit a three-year low. The Shanghai-LA spot rate was $2,092 per FEU last week and the US East Coast rate sat at $3,612 per FEU.
Carrier members in the 2M Alliance have announced 11 canceled departures from Asia occurring between late January and early February. That is roughly 90,000 TEU in normal capacity.
Excess truckload capacity to reduce contract rates
In 2022, a spot market pricing correction battered the US truckload sector. Large trucking carriers are in position to rebound as the US economy improves in 2023, and they are looking for a market turnaround by midyear.
From May 2020 through May 2022, average costs for long-distance truckload service rose 60.4%. From May through October, those costs dropped 10%. In late 2022, the truckload PPI was till 35% higher than its pre-pandemic peak. Shippers negotiating annual truckload contracts in the second half of 2022 gained YoY rate decreases of 8% to 15%.
Many truckload carriers entered the market last year. At the end of Q3, there were 2,057 more companies running one to 100 trucks than there had been in January. Therefore, truckload capacity will be readily available in the first half of 2023.
Lower rates and increased capacity should increase stability in the truckload market. However, normality is dependent on the stability of the broader US economy. Shippers are taking a more granular approach to contract by dividing their business to better manage costs.
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O’Neill Logistics is a leading third party logistics provider. We operate in California, Savannah, New Jersey. We service many verticals including Garments, Fashion Accessories, Footwear, Furniture, Home Goods, & Electronics. Additionally, we offer omni-channel distribution and all value-added services. Lastly, we focus on retail “drop shipment” fulfillment and item-level fulfillment services with same-day service offerings.
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