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Navigating The Wavy Ocean Markets

Navigating The Wavy Ocean Markets

Anders Schulze: Good morning North America, good afternoon Europe, and good evening Asia. My name is Andrew Schulz, and I'm the Global Head of Ocean Freight and Trucking here at Flexport. I'm super excited to spend the next 45 minutes with all of you. We have a lot to talk about. We're currently taking a look at the wavy ocean markets right here. What are we seeing right here, what now. What have we seen the past couple of months, and what are we predicting that in the coming weeks and month.

As usual, the ocean markets, or at least the past couple of years, they have been very very volatile, very dynamic. So please take a look at this disclaimer right here, what we talk about today, or the facts we present or the sort of expectations, the predictions, take it sort of for what it is, don't hold us accountable for it. We're trying to just share the best of our knowledge, but please take it with a grain and salt.

And today I'm being joined by two phenomenal speakers right here, Florian Braun, who heads up at Ocean in the EMEA region for Flexport. Welcome to you Florian.

Florian Braun: Hi, good morning, everyone. Glad to be here.

Anders Schulze: Then we have Nathan Strang, Director of Ocean at North America for Flexport. Nathan is the usual suspects on our webinars, also a popular LinkedIn writer. So if you want the latest and greatest on North America, especially at the destination level, please follow Nathan. Always sharing tons of valuable insight. Welcome to you, Nathan.

Nathan Strang: Hey, thanks Anders. Good morning and welcome everybody.

Anders Schulze: Cool. So let's take a look at the agenda. We've tried to sort of keep it very very simple, yet meaty given the nature of the topics. First and foremost, we'll take a look at the current ocean markets. What are we seeing out there at the moment, also hand in hand with the economic sort of indicators at the macro trends level we're seeing out there. Then we'll talk about the future expectations, what to expect given some of these macro trends. And then finally, what are some of the low hanging recommendations we have in front of us based on the recommendation from Florian, Nathan and myself.

And we are not going to end up with a Q&A in this webinar, we have a pretty sort of hefty data pack in front of us. In return, we will make sure that all of your written questions get attended either instantly online as a part of this webinar, where everyone else can see the answers. The questions we won't get to in writing, we will follow up an email just to make sure that you all get answers to your questions. But we have a few Flexporters available in app that are able to answer all your questions. Then as usual, you're more than welcome to download the deck and follow up to each of Nathan, Florian and myself for that matter, right after the webinar or later, we're more than happy to engage and get more insight from all of you.

Actual Space and Demand Are Stabilizing for the First Time in 2 Years as Consumption Slows

Let's take a look at the overall picture on what we're seeing in the world of ocean freight at the moment. The past two years as your all acutely aware, we've seen more demand than the actual ocean space out there. That's why we've had you know, a gap depicted in the graph. But what's interesting is at this point in time, and basically the past couple of months and weeks, we've seen the blue line, which is demand for space, and the red line, actual space after blank sailings and what not, skipped sailings. We've actually seen those two lines meeting for the first time or those two lines crossing for the first time in two years. The devils in the detail as usual trade by trade, port pair by port pair. But at the moment, demand and space available are sort of like coming together, we're no longer seeing the picture we've seen for the past great two years where we basically have give or take 20% more demand than actual vessel space out there. So the environment has changed and is expected to continue to change.

Declines in Consumer Demand Are Leading To Higher Inventories With Slower Turnover

Now what's driving some of this, let's look into some of the indicators we're seeing out here. In the following chart here we've depicted North America retail levels in terms of inventories and inventory to sales ratio. What's interesting is, you can see the blue line inventory levels at the retail level have continued to increase. And all of this data we're showing here in the solid line, lines comes with a two month lag. So we've tried to basically predict the future a little bit with the dotted blue and green lines here based on the leading indicators that we're seeing ahead of us in Flexport which we'll talk about a little bit later on in the presentation.

What's very interesting is the green line and the development of same, you can see that the solid green line is still hovering around, you know, levels that are lower than pre pandemic levels in terms of inventory to sales ratios for retail commodities. But what's interesting is the dotted green lines, based on the leading indicators we're seeing, we actually expect inventory to sales ratios to meet or even exceed historical levels in the month to come. A lot more insights on why that's the case. But at least that's how we're seeing things at the high level.

Before going into what we're seeing here, in terms of our data, our analysis, we would love to learn from all of you how you're seeing it. So let's do a quick pulse check on inventory levels out there. So let's get the questions uploaded, and then pulse check all of you. How much has your inventory changed in the past two months? Has it increased 50% or more, increased 25 to 50%, is it an increase of zero to 25%, no significant change or has it has decreased even? So please take 10 seconds or so to select one of the five options here. And then let's take a look at the outcome to see how the statistics stack up.

All right, let's take a look at the outcome here. Okay, so it looks like most selections are anchoring around 25 to 50% increase and zero to 25% increase. I can see the results are slightly changing as more and more votes are coming in. Let's check with you Nathan and Florian, how do you see this? Is this surprising relative to what you're reading out there, and from your many client conversations. Nathan?

Nathan Strang: Yeah, so when talking to most clients in the past couple of weeks, we have seen inventory overstock as one of the big driving factors in their shipping frequency. What I think is even more interesting is, it's not even necessarily that the individual client is, but sometimes their end user is. So if they're shipping into a big box retailer, if they're shipping into a distribution point, that location may be over inventory, even though the client is not over inventory. But we can see how that trickles down the supply chain and then drives into the forward looking projection for our clients.

Florian Braun: Seeing a similar trend. I mean, especially turnaround times between ports, customer facility and back has increased a lot. And that is related to full warehouses not being able to turn basically containers as fast as customers used to, this is one of the key learnings. We have customer conversations, we guess there is an increasing of stock, at least on certain products.

Anders Schulze: Great, thanks for sharing that valuable insight both of you. Let's move on for a second and take a look at some of the data and some of the analysis we've been doing in Flexport.

80% Of Historical Import Volume Comes From Sectors With Excess Inventory

So what we're seeing right here is an analysis we did on the different verticals, the different commodities out there, relative to how much they make up in terms of containerized import. So when you look at the pie chart right here, you can see that 80% of historical import volumes, they actually come from sectors with excess inventory, most predominantly retail, which makes up close to half of total import, but also largely driven by electronics and other verticals.

If we then make the assumptions that orders are being caught by, say 10% for example, and it actually translate into more than 45,000 TEU's of container capacity, not being needed in the market, which is effectively 8% of available import capacity at the weekly level, both in terms of import into North America and Europe. So obviously as orders are being caught, it's quite dramatic how much it actually impacts the supply and demand balance if you look at it from this perspective. And we've also done another analysis where we've looked into some big box retailers and their inventory to sales ratio.

Major Retailers Are Canceling Orders as Inventory Growth Outstrips Growth

So Nathan, it would be super valuable if you wouldn't mind taking us through the highlights on this one.

Nathan Strang: Yeah, I think that we've seen a lot of this coming through in the news, the over inventory story, right. So a lot of this inventory, some of this insight, some of this inventory is pulled forward. So in anticipation of congestion, possible slowdowns on the West Coast through labor negotiations, a lot of these larger retailers, were able to pull forward inventory and bring in safety stock. That is part of it. Another one is just anticipation that consumer buying habits weren't going to change very much year over year. So their forecasts for their models, said that they needed to order more cargo and more goods coming in.

And then lastly, you know, obviously just the overall slowdown that did happen. So goods that were already on the shelf not moving. We have seen that this isn't uniform though, it's largely driven by certain sectors of goods. And anyone can see that if you go shopping at the store, you'll notice that there's plenty of one item, nothing of something else. So that is also creating an interesting imbalance, because as the stores are full, their warehouses full, it's really hard to actually fix that, that balance as well. And clearly, if these stores are overstocked, then the clients shipping into them are also going to be overstock. It's going to as we said earlier, during the poll, it's going to trickle back into the stocks of the suppliers to these. And I think that's a piece of data that is much harder to find, but that we're clearly seeing as driving the market.

Anders Schulze: Make sense. How about Europe, Florian? How do you see this? Is this sort of a one to one comparison, a lot of the retailers we've outlined here, bits of American, big box retailers, how do you see it in Europe, different or same story?

Florian Braun: I mean, we don't have that as good data as we have in the US. But prices for food and energy have increased by the day. Additionally, you've got the war in Ukraine, which is added a lot of insecurity to consumer spending. So overall spending is down, except for travel and tourism. The spending, especially down in the areas like for furniture and home appliances, I think that was expected due to the boom last year. But even spending for food and groceries is down due to the high inflation, and this is pointing towards a bigger problem in consumer spending.

Overall we see a reduction of around 6%, which means on a stationary retail environment in the same level is February ‘21. And this has a lot of shopping restrictions due to the Covid virus. So I think that retail is not in a good spot currently. And additionally, like I mentioned, you see container turnaround times increasing because of full inventories. So I would say, it's safe to say that we're in a very similar situation as we are in the US.

Anders Schulze: Got it. Thanks for that insight. So somewhat similar picture with slight nuances on food in particular.

Spot Rate Have Deceased on Major East-west Trades Since Mid-February

All right, let's move on. So how is all of this translating into freight prices or rates? Obviously the, a narrower sort of supply and demand gap driven by buyers lower consumption has indeed seen its impact on the rate environment, right. As you can all see here, we have depicted where rates climbed up to in terms of peak levels driven by the so called premium rates, where in some cases we saw great levels exceeding a staggering $20,000 per 40 foot container on the imports to the US East Coast, right. And then we've effectively seen rates in some quarters come down 50%. The end of the graphs here actually shows the current effective moving rates where most of the cargo is moving on standard floating rates, as opposed to premium rates. But this is a sort of a complicated matter, you don't necessarily see these premium rates in the past, in the different indices. So Nathan, help us understand all of this complexity, what have we seen in the past? What are we seeing now? How to sort of like joggle the complexity of all these indices?

Nathan Strang: Yeah, I think one of the trends that we saw during the pandemic was the split between what we would call the moving rate and the index rate, right. So how much you would pay for the cargo to actually move on a service versus what the indexes were tracking, which would be your standard spot rate. What was the difference, and that was those premium services, things like no role, increased availability at the ports, such as an on wheels service or an early out gate service, expedited rail services, things like that, that weren't necessarily reflecting very well in the rates. And were also causing a little bit of an issue in projecting where rates were going to go.

What we've seen now is the moving rate and the spot rate are coming much closer together, as those premium services are kind of falling out of the industry. There are still what I would call the traditional premium services. And those are the fast boat services, the on wheels services, which are still performing and are still very valuable to clients who are booking into those, because they are the truly faster services in the market. But those kind of access services where you're paying for no role, special equipment, priority discharge, those are kind of leaving the market now as consumers become more price sensitive. And obviously with the inventory overstock time is not as critical as it was.

Anders Schulze: Nathan, how about all these extra loaders and newer services that have entered the Trans Pacific market the past two years? How do you see them developing the coming month?

Nathan Strang: Yeah, as demand falls, I believe we'll see the interest in extra loaders start to fall, which could be a good thing, we're seeing that also in these services, there's just not as much capacity to run these weekly services. So returning those extra loaders to mainland service will help also improve efficiency. But I don't expect extra loaders to be as plentiful. We've already seen a lot of them to charter services that were very popular last year, started to leave the market, the multipurpose ships going into the smaller ports, those services are already being canceled. Again, that'll drive rates down actually, because those also came at a premium. Those were above the spot rate services when you looked at their overall price.

Anders Schulze: Interesting. Florian, how was this from a European perspective?

Florian Braun: On the European, Asia to Europe trade, we don't have these classic premium services like on the transpacific from China to the US. It's a lot of more port calls in between. So those extra fast services do not exist. But we had during the Covid peak, of course, as you can see, when the freight rates peaked nearly towards a $20,000, that was basically the moving rate in order to get your cargo on the vessel more reliably. However, since origin operations, especially in China has considerably improved. So the origin operations are nearly back to normal. There's also the demand for the services are not there anymore. So the effective moving rate, I would look at, so to say is around $15,000 pre Chinese New Year. And now we are looking basically a spot rate of around $10,000. So there's a 50% decrease. and that's related to less port congestion in Asia, but also a slightly weakening demand.

Anders Schulze: Got it. Thanks Florian.

Causing Current Spot Rates To Be Below Fixed Rate Levels on Several Lanes

Let's move on for a second and look at the comparison between the floating and the fixed annual contract rates on Trans Pacific and Asia to Europe. So first, on the left side, we see the development of floating rates relative to the fixed rates on Trans Pacific, where they have climbed, floating rates have climbed to a level of give or take $1,000 lower than fixed. But the devils in the detail, port pair by port pair especially when it comes to some of the inland rates. There we still seeing fixed rates being higher than floating. And then actually on each year, we're seeing the reverse picture where fixed rates are still lower than floating rates.

Nathan, help us understand how to navigate this, what is sort of your tips and tricks here, because fixed rates are obviously you know, fixed for a reason. They're reliable rates, so they don't fluctuate similar to floating rate. So how to navigate this environment on the transpacific, let's perhaps start there and get your recommendations.

Nathan Strang: Yeah, it's interesting, because if you look at the chart back on May 1st, you can see that the spot rate was above the fixed rate. And that was kind of what we anticipated. I don't think anybody anticipated that the rates would fall this rapidly below, below the level but it is seasonal. This is the time of year when you would see those rates start to invert, prior to coming into peak when they would move back up again. As you mentioned, IPI is still a, you know, if you're moving into Chicago, Kansas City, Memphis, those rates, this fixed rate is still lower than the spot rate due to demand and congestion at those.

How do you navigate this? So I think if you're a client who has a fixed contract, one of the things to remember that it's not just a rate, it's a space. So these rates come with kind of head of the line space, they come with access. So if you decide to move away from your fixed contracts and move and take care, take advantage of the spot market, you may not have those fixed contracts available to you when peak hits the rates invert or space becomes an issue. The carriers are going to look to the rate levels and making decisions on loading cargo, and if they see a fixed rate versus a spot rate, that fixed rate is going to load ahead of that spot rate.

Again, it's an individual decision on the part of the shipper as to where their risks lie, if your immediate risk is in rates and not in space, just understand that, that immediate risk may not translate well into preparing for risk down the road if the rates again do come up, or if space does become a premium as we go into peak season.

Anders Schulze: That's good. That's good concept Nathan, and interesting you say, when peak hits, I think that's the million dollar question, right? We'll discuss that a little bit later as to whether both the audience and the three of us feel that the peak is coming or not. But beforehand, Florian the picture is slightly different on the year trade, how do you see this and how to navigate it?

Florian Braun: Yeah, so the currently the spot rate is still above the contracted rate. So seasonality wise, you would expect a decrease after Chinese New Year into June. This is also what we saw, which is reflected in the graph that we see here. However, as of, as from July onwards, that would be traditionally a peak into Europe. But rates are flattened out, and so has demand. So I don't want to take it upfront, but this peak doesn't seem to happen. So I do anticipate a further drop in spot rates temporarily, maybe even below the contracted rate. So what does it mean for the customer? I would say the situation is unclear as we have like opposing trends, and a short term dip below the contracted rate is possible. However, this can change very very fast too. And if you have contracted rates, I would stick to it. At least this was part of the volume as you don't want to move into the spot market because this will not translate the current situation, will not translate into the future. Or it's very insecure, if it will. So despite the fact that you currently see softening spot rates, I anticipate that the contracted rate will be the better deal over the year.

Anders Schulze: Interesting. Thanks Florian, thanks for sharing. Let's take a pulse check with the audience on how you all see it. So let's upload the questions here on how to navigate fixed versus floating rates. So we have the following question, how much volume are you booking on your fixed contracts in the current market? More than contracted volume, if you have indeed contracted fixed base. Equal to contract volume, less than contracted volume, don't have any fixed rates. Would love to learn from all of you, please select one of the four options right here. We'll give you 5 to 10 seconds.

All right, let's take a look at the outcome. Okay, very interesting. So close to 60% do not have fixed rates. But yes, that's a good thing, at least at the moment on transpacific, but may not be a good thing if we indeed see a Q3 peak where the floating rates could climb back up above the fixed levels. And then of course the reverse story on Asia Europe. Any commentary here Nathan, Florian? Any reactions? If not we'll move on. We have a lot of additional mini topics. Alright, let's keep going. Thanks for that insight everyone.

Blank Sailings Have Receded Since February, but Remain Above Historical Levels

Okay, so supply and demand in terms of vessels space from a supply perspective, obviously go very much hand in hand with blank or skipped sailings that we have seen, you know, increase to a historical high for the past two years basically during the Covid economy. What we are seeing though on more trades is that the blank sailing or the skip sailing percentages are coming down somewhat and as of lately, across traits. Nathan, how to read this in terms of Asia to North America and what to expect?

Nathan Strang: Yeah, I think one of the big things that was driving blanks over the past two years was congestion on the West Coast. When we saw the vessel backlogs at Los Angeles and Oakland, PNW in Vancouver. Those vessels sitting for two weeks, it's obviously going to cause service disruptions and blank sailings. And similar to the East Coast, when you see issues at Savannah and New York right now. However, as service improves you are seeing these blanks start to decrease. This is a good thing, about 50% of global trades are under staffed with vessels so they don't have enough vessels to maintain their regular scheduled frequency. So as blank sailings come down, we mentioned extra load are starting to come onto the market, service reliability will go up, that's a really good thing.

We also see a trend on the West Coast of vessel size during the pandemic years 2020 and ‘21. The average vessel sizes around 7,000 TEU, we're now seeing them move up into the 10,000 TEU region which is more expected. So vessel efficiency, less vessels coming in per week is good, less handling, less congestion at the terminals. And overall this should be a good thing for when we look at service reliability going forward for this year.

Anders Schulze: Great, thanks for sharing that Nathan. Let's take a look at the Europe trades and how that compares. Florian it was you.

European Lanes Are Less Volatile, but Have Seen Similar Declines in Blank Sailings

Florian Braun: I mean, the same as to the US market we saw a spike in blank sailing of course during the COVID time. However, now if you look into 2022 we had still quite a few blank sailing to challenge the year and also due to the Shanghai lockdown. But right now for July, there's very few blank sailings announcements. So on average, one to three maximum sailings are blank. However, depending on the situation that can change really really quickly. I mean, it's an announcement of two weeks nowadays and sailings can be blank. But right now, it looks like that more stability will come into the trade.

If you look from to Europe to North America, this is a totally different market. It's mainly driven by the industrial engineering sector by automotive or commodities like chemicals. Here, we still have a quite a strong demand and due to the port congestion in Hamburg and other European ports, there has been a spike in blank sailing beginning of this year. It came down but now from July onwards, also seeing more blank sailings being announced on transatlantic in order to restore schedule integrity.

Anders Schulze: Thanks Florian.

Ocean Transit Times Have Shortened 35% As Congestion Eases Somewhat

Okay, let's look at the transit time across some of the three key trade lanes out there. China to LA, China to New York and China to Rotterdam, I think is most acutely aware transit times have been reaching its highest we've never seen before in our industry. In some cases, they doubled or tripled from cargo ready date until the goods were received at that warehouse destination.

What's positive, as you can see in the chart here, and as I'm sure you're all feeling day to day in your global supply chains, the good news is that it has been reduced significantly the past six month, it's still very high relative to historical levels. But the TLDR right here is that the total transit times have sort of an average being in shortened by 35% as congestion eases to some extent. The big question is to what extent and how faster are we expecting them to drop in the weeks and months to come. How much further will transit times come down? We have a few slides talking about some of the sort of projections we're seeing at the land side in terms of the congestions we've seen the past two years, so let's keep going.

Low Schedule Reliability Extends Transit Times at Origin

In terms of the global schedule reliability, as both Nathan and Florian alluded to, we can see in the left chart here that despite some improvement in the global supply chains, the global scheduled reliability from carriers are still hovering around historical lows of of 34%. There is a bit of a lag in this data point, because it dates back to April, we should see a slight improvement in the month of May and June. But it's still very very clear that the schedule reliability remains historical low for a number of reasons. On the right chart here, we have basically shown some of the disruptions at origin, where essentially we're seeing continuous delays from the scheduled departure date, relative to actual departure date. But Nathan, please help us understand the metric we have depicted here on the right side, because the devils in the detail how to read this chart would love your insight.

Nathan Strang: Yeah, Origin Port Dwell is something that actually, I think is a kind of under tracked, especially being here in North America, we tend to look at the dwell of the ports here. When you look at the origin dwell, a lot of this is driven by local conditions. And if you see that spike there, that's Chinese New Year, so obviously, you know Chinese New Year is gonna cause some disruptions there as ports close, and people go on holiday and factories. And then there's another spike in there, it's little bit harder to see, but the Covid spike, right. So if you're looking at all of Asia, that little spike is pretty significant, because it's really driven by just one port when we're looking at Shanghai's shut down.

So a lot going on there in terms of backups, and these backups also compound, and that's another reason why schedule reliability in general is taking a long time to come back. If you consider your morning commute, if there's an accident you'll be backed up, why is there so much traffic, you'll get to a point and you'll see that the accident has cleared a half hour to an hour ago, but you're still in traffic. So any backup and slow down is going to compound and we really need multiple weeks of reliable service and back to normal before we can see a recovery in both origin port dwell and scheduled reliability.

Anders Schulze: Thanks Nathan.

Destination Landside Bottlenecks Persist in Many Regions

You mentioned Shanghai, we've actually outlined that as one of the hotspots in the graphic right here. Florian, enlighten us on the latest around the Shanghai situation. Where are we today relative to where we were a month ago.

Florian Braun: So port operations has always continued almost normal in Shanghai, but due to the lockdown there was a shortage in trucking and drivers weren't able to get into the port and a lot of restrictions. So that caused quite a bit of volume decline out of Shanghai. If you look at the total situation from China into Europe, like the original operations has improved a lot compared to a few months back.

So what we currently see is many building port congestion, specifically in Hamburg there's some severe anchoring delays there. So currently there are 15 vessels, far east westbound or far east vessels waiting outside on the ocean to call Hamburg and if you think that one vessel has maybe 20,000 TEU's capacity, you can imagine how much cargo was waiting in front of Hamburg, and that is indeed basically bring down overall schedule reliability. Again, now the problem is that destination at least in Germany and not so much at the origin anymore. In Rotterdam and also other ports like Antwerp, Plymouth, you see high terminal utilization, but you don't have a severe anchoring delays as you see in Hamburg. So if you're able to alternate used, to alternative your port of destination, so strong recommendation currently choose Wilhelmshaven as intermodal transport has improved dramatically, and also Bremerhaven basically a lot better than Humberg at the moment.

Anders Schulze: Florian tell us a little bit more about what's driving these destination delays in Hamburg, etc.

Florian Braun: So it's a combination of schedule delays, they've got a lot of large vessels arriving at the same time and they should be arriving at a specific sequence. Additionally, the Ukraine war has led to a lot of abandoned cargo that was consigned to Russia, those containers are then congesting the terminal and they bring down the operational efficiency a lot. So, I mean ocean carriers, terminals, freight forwarders are working hand in hand to resolve that, but it has, especially in Hamburg in combination with some really bad weather has led to a major congestion. But as I said, like other posts like Wilhelmshaven, Bremerhaven and also Rotterham are somewhat better. So due to the inland connectivity across European countries, I think it can be managed.

Anders Schulze: Thank you. Super insightful. Nathan, let's zoom back into North America and the hotspots right there. Give us the highlights.

Nathan Strang: Yeah, I think one of the big hotspots right now is rail. So rail is very congested, especially in the Chicago market, we just saw that Dallas is now very congested as they're running out of chassis as well. And if you look at the numbers and with cargo going down and everything, it's like, why is this happening, and it goes to those negative feedback loops and also talks back into the overstock of inventory. So what we're seeing are these trains are going into places like Chicago, Memphis, Dallas, loaded with cargo for these large retailers, and large retailers can't take delivery of the cargo. So they are leaving the cargo stacked at the rail terminal. These rail terminals aren't very big, they're not really designed for storage of cargo, they're designed for flow of cargo. So a train comes in and gets offloaded, and that cargo is out of the terminal within about two days.

So there's no real storage. So as the storage there's backs up, including on chassis storage, which now takes chassis is out of the market, there's nowhere to put the next train coming in. So they have to park the next train coming in, either prior to the terminal or into a siding, which delays that cargo coming in. Now that siding is taken up that rail, is taking up it backs up even further. It backs up until you have something like 50 trains waiting at West Coast ports that can't dispatch to Chicago. These are loaded trains with containers that can't go anywhere. So we're seeing rail dwell on the West Coast, spiking above 20 days right now, really due to a downswing in cargo demand is driving the congestion. So really interesting situation, there's a lot of other things going on with rail right now in terms of equipment, utilization and labor issues. It could probably be its own session, honestly. But that's one of the big stories. And then obviously, on the east coast, if you've been paying attention, there's about 30 plus vessels at Savannah still backed up. And then New York has about 19 vessels and backup.

Very similar to the Rotterdam situation where you see vessel bunching. So several vessels, especially on the same service will all come in within two or three days of each other. It doesn't give the cargo enough time to get out in town turn around and come back to the port to be loaded then as an empty. So now you're holding on to these empties for 10 or 15 days, they're on chassis, there's no chassis, can't pick up again. It's these negative feedback loops. And that's what you also see in that origin dwell story in China, that if you can't get back down to normal, you just keep bumping up, bumping up, bumping up as the next congestion comes in. So even at the current cargo levels we're still seeing, you know, normal cargo demand, even though we're less than 2020, 2021. So we're going to still see these compounded issues persist. And they're going to have to kind of be slowly chipped away through efforts of clients and forwarders and carriers to clear these situations out.

Anders Schulze: Yeah, so even though demand and consumption is dropping, it'll take some time to clear the backlog. Yeah, make sense. Okay, let's take a look at the next one here.

US West Coast Labor Negotiations Are Ongoing

Nathan, keep going. You're the expert here. What to expect?

Nathan Strang: Yeah, Sorry about that. Yeah, the next hot button issue is of course West Coast labor negotiations. I think the overall theme here is it's been quiet and that's a good thing, if you follow labor negotiations and sports, the last thing you kind of want to hear are the sides coming out in issuing press releases, hitting on each other. The what we've heard from both the PMA and the ILWU have all been positive. They have been in negotiation every day from May 10, except for a small break around Memorial Day. Neither side expects there to be a stoppage or a slowdown. They also don't expect the deal to be done by July 1, I would not panic about that. That again is normal. They are going to continue to work through the negotiation but from what we've been hearing from all of our sources, the sides are not very far apart. They're hammering out some final details. However it's unfortunately a wait and see, they are being very close with their negotiation and aren't releasing much. So until it comes out and until we see a final deal signed, we will wait patiently and hope for the best.

Anders Schulze: Thanks Nathan. So it's fair to say as a key takeaway you remain optimistic for now, but nothing is cast in stone yet.

Nathan Strang: I am eternally optimistic.

Anders Schulze: That's good. Okay, let's do another quick survey for the audience here. We talked early on about whether we should expect a normal peak season in terms of a demand surge here and the third quarter, more specifically in August and September, similar to what we normally see from a seasonality perspective. So that's the million dollar question. Will we see a peak come Q3, I would love to check with all of you how you see it, select any of the three options right here. Yes, expect the peak in Q3. No, not expected, or the third one, have zero idea basically. Select one of the three. We finish on a simple poll, not to keep things too complicated. Let's see what the audience say in a couple of seconds.

All right, let's show the results. Okay, interesting. Close to half of your think that we are going to see a peak. A third, don't expect the peak and the remainder 16%, no idea. Florian, Nathan is this a surprise to you?

Florian Braun: A little bit. I'm, at least into Europe the 50% still see a peak in Q3. So this comes a bit of a surprise as it should have taken off already. So let's see if it comes just a bit delayed. Or it's maybe also driven by our American guests so to say, where the peak starts a bit later as transit time so shorter.

Anders Schulze: Nathan?

Nathan Strang: Yeah, I do think there's gonna be a peak. I don't know what it's going to look like, will it be a severe peak, will be what we normally see, you know what we saw last year, but I do, because unfortunately there's going to be this bullwhip effect when it comes to inventories. It takes a while to kind of restart shipping, especially if we're seeing congestion still at the ports and especially congestion into the inland locations. Those overstocks will turn into under stocks very quickly. And also seasonality, right, we're gonna see back to school here very shortly, then we're gonna get into Christmas season and I am, I said I'm eternally optimistic. I'm always also optimistic of the American consumer, we will spend our way through issues, we saw that during Covid. I even think with inflation, Americans will find a way, we will always want to buy things, we will always want to celebrate our holidays. So I definitely think that there is going to be a a peak this year.

Anders Schulze: Thank you both. Thanks for sharing. And thanks for everyone dialing in and sharing their insights and votes. Let's recap it in terms of the overall takeaways.

So Far 2022 Has Been Another Year of Significant Market Impacting Event and Our Supply Chains Must Remain Resilien

So essentially, just to basically summarize everything we've talked about starting from the left, 2021 was all about the Covid economy. The demand boom, caught on landside congestions, which essentially led to all the supply constraints, then, ever since we saw a pretty normal Chinese New Year, leading up to February with a normal peak season. But quite surprisingly, we saw demand dropping faster than normal post Chinese New Year seasonalities.

Then we've seen the sad war in Ukraine, which has impacted some of the European supply chains and patents Florian talked about a little bit earlier and specifically around the food sector. And we saw the black swan event with the Shanghai lockdown that basically reduced Shanghai exports by more than 50%. And then we've now seen the European port congestions that Florian talk to us about, not to the level of what we've seen in some of the American polls in particular LA Long Beach, but nevertheless, take disruptions relative to the past. And then we saw the event of some of the public financials from the big box retailers that Nathan talk to us about where we essentially saw quarter over quarter inventory figures jumped significantly, whilst at the same time as sales data reduced significantly. And then Nathan just spoke to us about the labor negotiations ongoing and what to expect there. Then as we just pulled everyone on the call on right now is what to expect in Q3, is there a peak coming or not. With that, let's summarize with some of the key takeaways in terms of tactical recommendations for all of you.


Florian and Nathan would love your perspective on the four key recommendations here. Nathan, maybe you start and then we'll finish off with you Florian.

Nathan Strang: Yeah, I think these are recommendations that we generally share with our clients. Two weeks minimum before CRD, make sure that you have your bookings in, make sure that you have a good booking forecast. And you're sharing that with your forwarder and with your operations and logistics teams. The spot offering, they're very attractive right now, but I would also say don't forget about your fixed, if you're a client with fixed contracts, those may be very valuable to later in the shipping season. And resilient is another thing. I think adaptability and flexibility have been what have broken out certain shippers from others, we've seen those who can be resilient in their supply chain and adapt quickly to the change in the market, do the best and those who are a little bit more rigid and have longer decision making cycles kind of fall behind the pack.

Anders Schulze: Thanks, Nathan. Florian any final words from you?

Florian Braun: Yeah, I think the recommendation to book two weeks in advance already is a good one. But even better might be just choose a provider that's able to create the transparency for you about schedule changes, origin delays, and then also can advise you what are the reliable services. So there's very big discrepancies in the market. So there is some services that on average are only one day late. And then what does it matter? Okay, on time performance isn't there, but it's only one day late. So choose those services and work with a provider that's able to give you this information.

Additionally, absolutely look at the routing. As I said, if you can avoid for example Hamburg, if your cargo that urgently need this on a vessel that waits two weeks outside of Hamburg, then obviously that's a problem. But if you choose Wilhelmshaven, Bremerhaven and Rotterdam as an alternative that you're better off. And if it comes to spot rates that might fall below the contracted rate, yes, it might make sense to small proportion if you have contracted rates that might make sense to hedge your risk and say, okay, I've got a portion on contracted rates and other postman spot rates, but plan that ahead, don't change back and forth, as that will really harm your reputation overall, and it will lead to problematic setup later on. So those contracted rates might be a real asset later in the shipping season. So don't give them up.

Anders Schulze: Thanks Florian, and thanks Nathan. Thanks to both of you. Thanks for everyone dialing in. We'll get back to any questions in writing if we haven't already attended them in the app, and then feel free to reach out to any three of us subsequently. Thank you very much. Have a great day.

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