Trucking, Tariff Changes, Carrier Vessel Makeup Affect US Market
The last few weeks of December and first couple weeks of January should be very challenging for truckers, Importers and Exporters in the US. With Importers rushing to import product prior to tariff increases taking effect, coupled with winter weather, and the holidays, a perfect storm has arrived. BOC International anticipates that Importers and Exporters will face even more challenges than normal getting your product to and from ports, rails and airports in the coming weeks.
As always, BOC will help in any way we can to help your freight move smoothly. Please call a BOC Representative today, to discuss.
Below are two articles that we believe may be helpful to you:
US tariff Postponement May Reshape Early 2019 Trucking
Excerpted from JOC.com
William B. Cassidy, Senior Editor | Dec 04, 2018 6:37PM EST
The imposition of US tariffs of 10 percent on $200 billion worth of Chinese goods earlier this year shifted peak shipping seasons on land and sea in the US, pulling the maritime peak season from August to July and shifting the timing of truck shipments. Now the 90-day pause to a US threat of escalated tariffs could reshape the first-quarter US transportation landscape. The postponement may lead to more spring and summer retail goods being imported in the first quarter, in advance of 25 percent tariffs that now could take effect just before March. If so, that could turn what was expected to be a very dull first quarter into a busier one for US shippers and motor carriers. The true impact may not be known, though, until at least February.
Before 2019 arrives, US trucking companies are likely to see freight volumes rise higher because many importers shipped goods in advance to beat the former Jan. 1 tariff deadline. In late November, US companies were making “last-ditch” attempts to get good loaded on container ships that would arrive at US ports before the threatened New Year’s Day tariffs. “December is booked,” said Lawrence Burns, senior vice president of trade and sales at Hyundai Americas Shipping Agency. “I don’t imagine we’ll get any cancellations,” he said. Hyundai’s vessels leaving Asia in the coming two weeks are pretty much booked to capacity, he added. The tariff postponement, however, means the first quarter may be busier than usual.
On the US landside, that would create more demand for container drayage, over-the-road trucking, and intermodal rail in the first months of 2019, as shippers once again balance the cost of moving freight to distribution centers in the US ahead of uncertain tariffs or risk paying the penalty of higher import costs on those goods if those 25 percent tariffs take effect. With the US economy strong, there could be a steady flow of cargo right up to the Chinese New Year Feb. 5. Before the tariff postponement, a complete drop off in Chinese imports was expected in the first quarter, but now logistics managers are working to determine how much more they can import before March 1, injecting another phase of volatility into the trade.
‘Front-loading’ created an earlier peak
The impacts of “front-loading” imports to avoid tariffs this summer and fall are becoming clearer. July may have been the true trucking peak this year, and that apparently softened surface freight traffic in September and October, as goods had already arrived and moved inland earlier. The trucking spot market stayed soft until November, when volumes and rates moved up. “Everything was squeezed into November, and late November, rather than spread out over October and November as you’d usually expect,” said Peggy Dorf, market analyst at DAT Solutions, the spot market load board operator. Freight activity “is already moving from West to East and now it’s everywhere at once,” as would be expected four weeks before Christmas.
Los Angeles “was a huge focus for three weeks running” in November, she said. “The volume kept rising, and then in the last week and a half there’s been a flattening.” Instead, volumes and rates have jumped on lanes connecting inland distribution centers and markets. In the week of Thanksgiving, rates rose on 78 of DAT’s top 100 lanes. DAT expects spot rates to continue to rise in December, and is working on a pricing forecast for 2019. The company expects increasingly tough year-over-year comparisons. In the 2018 first quarter, unusually high freight demand collided with the electronic logging device (ELD) mandate, and capacity shrank while spot rates soared in an unlikely “winter peak.”
“A year ago, there were quite a few owner-operators who were quickly getting an ELD and going through the process of figuring out how to use it and stay productive,” she said. “Here we are a year later, and they’ve figured it out. They’re smarter about the lanes they’re choosing and the loads they’re picking. They’re smarter about drive time and shipping and receiving.”
Downgraded trans-Pacific forecast signals challenges beyond tariffs
Excerpted from JOC.com
Bill Mongelluzzo, Senior Editor | Dec 04, 2018 5:52PM EST
A new forecast of eastbound trans-Pacific volume — anticipating a slight deceleration of growth in 2019 to 5 percent, and then a drop to a new range of 2 percent annual growth through 2023 — shows the depth of capacity management required by carriers beyond what happens in the China-US trade war. At the same time, the Sunday Spotlight published by Sea-Intelligence Maritime Analysis reports that vessel sizes are increasing, especially to the East Coast. As vessels get larger, terminal operators struggle to handle the container exchanges that are generated, resulting in yard and gate congestion, and port-related infrastructure is likewise stressed.
Sea-Intelligence trans-Pacific demand projections
Sea-Intelligence modeled growth in demand in the largest US trade lane based on projected increases in gross domestic product and merchandise imports. Demand growth was stated in a range of low to high, producing the following annual projections: 2019, 4 to 6 percent; 2020, 3.5 to 5 percent; 2021, 3 to 4.5 percent; 2022, 1 to 4 percent; and 2023, 1.5 to 3.5 percent. If the average annual growth rate indeed slips to the 2-percent-range, this will represent a decline from recent annual growth rates of about 5 percent, and a significant drop from the average annual growth of about 8.5 percent in the boom years of 1996 to the Great Recession year of 2008.
During the summer-fall peak season this year, US container imports increased 6.4 percent over the June-October period last year, according to PIERS, a JOC.com sister company within IHS Markit. However, since some of that growth was due to front-loading of imports to get ahead of tariffs and threatened tariffs, growth is expected to be muted going into 2019. The Global Port Tracker published monthly by the National Retail Federation and Hackett Associates projects imports will increase 2.8 percent in January, 0.4 percent in February and 3.3 percent in March.
When carriers base their spring service contract negotiations in a pessimistic frame of mind, as they did this spring, they may undersell their services. Carriers projected excess demand during the 2018 peak season. Carriers then suspended three weekly services to the West Coast, reducing total capacity by about 6 percent, and one service to the East Coast, reducing capacity about 1.3 percent. Shortly after the contracts were signed, the Trump administration announced 10 percent tariffs on billions of dollars of imports from China, and this summer announced the tariffs would increase to 25 percent on Jan. 1, 2019. Beneficial cargo owners (BCOs) reacted by front-loading holiday season imports this summer and 2019 spring merchandise in November-December. The unexpected surge in imports, an increase of 5.3 percent in January-September from the same period in 2017, sent spot rates soaring to five-year highs.
Presidents Trump and Xi over the weekend agreed to postpone tariff actions for 90 days as the countries attempt to reach a long-term agreement. Sea-Intelligence stated that its projections do not factor in any impact from the trade war, noting that longer-term demand projections often miss the mark, due to unforeseen or unmeasurable developments. However, based upon macroeconomic data that indicates lower GDP growth in the world’s major economic zones and lower import growth, carriers must consider their vessel deployment plans with a conservative mentality. Based upon their experience this summer and fall, carriers responded to the unexpected spikes in demand by upsizing vessels in existing strings, rather than adding new strings, and by deploying about two-dozen extra-loader vessels.
Vessel upsizing has ended, but mega-ships remain
The rapid growth in global vessel capacity resulting from large vessel orders earlier in the decade has subsided, although vessels that have been delivered in recent years are much larger than in the past – the mega-ships – with many in the range of 18,000-TEU to 22,000-TEU capacity. Those super post-panamax vessels are entered into the Asia-Europe trade, though many of the vessels that are displaced in the 10,000-TEU to 14,000-TEU range, are redeployed in the eastbound Pacific to the West Coast, and since the Panama Canal expansion in 2016, to the East Coast.
Sea-Intelligence noted that the average vessel sizes deployed by alliance and non-alliance carriers to the East Coast ranged from around 7,500-TEU to 9,000-TEU, with the maximum sizes between 10,000 TEU and 14,000 TEU. Average West Coast deployments ranged from 6,000-TEU to 10,000 TEU, with maximum sizes from about 12,500 to more than 14,000 TEU. Carriers continue to upsize their vessels in the major east-west trades in order to lower the per-unit carrying costs, which drives more profits to the bottom line, as long as rates do not deteriorate, due to the additional capacity in the trades.
However, calls by fewer but bigger ships take a toll on port operations, especially in the two major load centers of Los Angeles-Long Beach and New York-New Jersey, where container moves per vessel call regularly total 6,000 to more than 10,000 as a higher percentage of the contents of each vessel is worked during these first-call ports than at the other gateways that are served. This past year, due to congestion and typhoons at Asian ports, especially Shanghai, vessels have been arriving in North America three days or more later than scheduled. As a result, marine terminals in North America have to contend with vessel bunching, congested yards, excessive gate times, chassis shortages, and road and rail infrastructure that is overwhelmed from cargo surges that are much higher than they were several years ago when the rapid upsizing of vessels began. Therefore, even if the growth in container volume slows considerably over the next five years, ports and terminal operators will have to improve their performance to maintain cargo velocity.