US container shipping braces for headwinds as peak season approaches: Container xChange forecaster: August 2024

Key Highlights covered this month -

1. Leasing Rate Surge: Container leasing rates from China to the US continue their upward trajectory, with rates increasing by up to 85% on key routes. These one-way container leasing rates spiked by an average of 28% on the China-US stretch. The biggest spikes were witnessed from Shenzhen to Long Beach (85%) and from Ningbo to Los Angeles (65%).
2. US Market Volatility: The upcoming US elections and fears of labor strikes are adding layers of uncertainty to the market. Container traders are bracing for potential regulatory changes and price hikes, with many expecting continued volatility in the coming weeks. Our container price sentiment index shows persistently high percentage of container traders expecting container prices to further rise in the coming weeks in August.
3. Retail Inventory Dynamics: US retail inventories have risen slightly, but consumer demand is not shooting up considerably . This mismatch is creating challenges for container traders and retailers, as they prepare for the holiday season.
4. Intra-Asia Trade Boom: The report highlights a robust increase in intra-Asia trade, driving container traffic and rates in key Asian ports. This trend is benefitting the Asian economies and influencing global container markets.

The US container shipping sector is cautiously approaching the peak season, with the upcoming US elections and labor negotiations poised to bring their own set of implications for the container logistics industry, as indicated in the August Container Market Forecaster by Container xChange.

The sector has already been witnessing its own set of challenges like overestimation of demand, pulling forward of orders which caused inflationary trends in the freight and container rates and resultantly, the wait and watch strategy by container sellers and container buyers.

The election year brings an element of uncertainty, as many US container traders are concerned about potential changes in trade and regulatory policies, as well as economic policies that could impact consumer sentiment and their spending patterns.

“While our customers anticipate these headwinds impacting their business, they also remain hopeful that business activity will pick up in September as companies prepare for the holiday season.” shared Angelo Marino, Americas Account manager, Container xChange.

“The upcoming labor negotiations on the US East Coast in Q3 add another layer of potential volatility. Retailers have been preparing for the peak season since early 2024, aiming to avoid stock shortages, and now that we're entering this busy period, the focus will be on understanding the true demand dynamics. The anticipation of these events is critical for navigating the complexities of the market in the coming crucial months.” shared Christian Roeloffs, cofounder and CEO of Container xChange.

"The hot container leasing market isn’t solely due to the Suez Canal issue; it also ties into expectations surrounding potential changes in US administration and international trade policies. Additionally, retailers are anticipating the peak season and aiming to ensure their stock is secured well before November to avoid any kind of disruptions. While we expect container imports in Europe and the US, along with Asian exports, to remain strong as we approach the peak season, this momentum is likely to cool off by the end of the year. This is because the current stock recovery from retailers will have been largely completed. There is a possibility that the market could stay hot a little longer if retailers decide to stock up ahead of the Chinese New Year, but we don't anticipate that the current market conditions, influenced in part by the Suez Canal crisis, will persist indefinitely into the future," shared Andrea Monti, Managing Director and CEO of Sogese SRL, a trading and leasing company based in Italy and a customer of Container xChange.

“Our customers in the US are facing challenges with inventory liquidation due to mismatched expectations between container buyers and container sellers. In this context, it may not be a prosperous time for container traders, the logistics market, or retailers who have stockpiled inventories to avoid delays in the peak season.” added Roeloffs.

Container Price Sentiment Survey Results

A survey of around 1,000 US-based container traders reveals that 78% expect container prices to continue rising in the coming weeks, driven by election uncertainty and potential labor strikes. Only 14% foresee a decline, while 8% expect prices to remain stable. This indicates a broad expectation of continued volatility in the US container trading environment.

However, the global Container Price Sentiment Index (xCPSI) by Container xChange dropped from 63 to 39 points in July, suggesting waning sentiment towards rising container prices in the near term.

Roeloffs added, “The overestimation of strong consumer demand has resulted in overstocked retail inventories. We've observed for some time now that actual consumer demand hasn't experienced a significant spike, thereby allowing retailers and importers ample time to restock before their next cycle. This situation could challenge the container shipping industry, as the recent spike in freight rates and container prices may not be sustainable further in the rest of the year. It's only a matter of time before we see a downward trend in container and freight rates."

Market Outlook

“As we approach the peak season of 2024, we're observing a couple of pivotal shifts expected to impact the container shipping industry. First, there's a gradual correction in supply and demand on the cards that should stabilize rates in the latter half of the year, owing to a lack of solid demand surge. On a longer term, the more profound change is the ongoing trend toward regionalization and smaller trade networks, which became mainstream in 2021. This shift has gained even more importance today, especially as geopolitical conflicts become a regular consideration in risk resilience strategies. Intra-Asia trade boom is a significant factor that indicates that smaller, more complex trade networks are developing and flourishing.” shared Christian Roeloffs, cofounder and CEO of Container xChange, the online container trading and leasing marketplace, based in Hamburg, Germany.