As with many dynamics that have experienced major shifts since the worst of the supply chain crisis, shipping containers are not only more available — forlorn empties have been piling up.
It seems it wasn’t so long ago that we were writing about a shortage of intermodal containers, which contributed to skyrocketing shipping rates.
But in a June 27 Supply Chain Dive post, editor Larry Avila reported that executives at J.B. Hunt and Schneider National said at a recent conference that intermodal uncertainty meant their containers would remain “parked until businesses and retailers start clamoring to replenish inventories again.”
“Freight carriers nationwide are carefully watching retailers like Macy’s and Kohl’s manage inventories to clear out stock and protect margins,” Avila wrote. “In response, the nation’s two largest intermodal service providers are taking their own equipment management actions that could help protect margins.”
And though many hope things will pick up in the second half of 2023, Darren Field, J.B. Hunt President of Intermodal and EVP, said that may not be the case.
“I don’t have any green shoots for you,” Field reportedly said. “I think everybody has a significant dose of ‘I have no idea’ and that just means inventories are beginning to bleed off, but that hasn’t translated to anything at this point for us.”
Such sentiments reflect global inflationary pressures that seem doggedly intent on eating away at consumers’ budgets — which means spending on nice-to-haves is down and inventories are up.
Let’s take a look at what other experts are saying about current and predicted trends related to intermodal dynamics.
Intermodal Association of North America
Writing for Logistics Management, Jeff Berman reported on intermodal volumes issued by the Intermodal Association of North America (IANA) for the first quarter — as well as the most recent monthly numbers (April).
Total first quarter volume was “…down 8.6% annually, marking the seventh quarter of annual declines and the second largest decline over that period,” wrote Berman, who also said the IANA blamed the “sluggish start to 2023” on “lower levels of domestic output and international imports.”
Despite improvements in “terminal velocity, chassis supply, drayage availability and rail network fluidity,” Berman said the IANA underscored the fact that “…consumer spending on goods slowed, inventories remained elevated, and truckers added driver and equipment capacity.”
Following a similar trend, April numbers were also down.
“Total April volume—at 1,300,416 units—fell 15.4% annually…” Berman wrote in a May 19 post. “Through the first four months of 2023, IANA reported that total volume—at 5,240,569 units—is off 10.4% compared to the same period a year ago.”
And though IANA President and CEO Joni Casey expressed cautious optimism about the remainder of the year, she also described it as a bit of a “moving target,” according to Berman.
“The ‘new normal’ seems to be moving towards ‘flatter’ longer peaks,” she reportedly said, noting that some weekly gains had also been observed. “If gains in weekly volumes continue, we may see more of a traditional peak season—ramp up to September, and holding through October and November heading into the Holidays.”
Berman said the IANA described the “import side” as a “wild card” regarding the shift of containers to East and Gulf Coast ports that took place in 2022.
“The all-water rerouting of containers to the East Coast and Gulf Coast also has moved some volume from rail intermodal to truck, which is more competitive in those shorter lanes,” Berman wrote, quoting from the IANA report. “Pending a new West Coast labor agreement, at least a major portion of that freight should return to the West Coast and more intermodal-friendly lanes.”
Association of American Railroads
Writing for Railway Age in a June 7 post, Executive Editor Marybeth Luczak also noted the downward intermodal trend. She cited a report from the Association of American Railroads (AAR) regarding U.S. rail traffic for the week ending June 3, 2023 — which included volumes for May 2023.
“Roughly half of U.S. intermodal shipments are related to international trade, so what happens at ports is extremely important to railroads,” said AAR Senior Vice President John T. Gray in the report. “U.S. port volumes, especially on the West Coast, have already been trending down for months and are a major reason why rail intermodal volumes have been on the decline in 2023.”
Weekly reports since have demonstrated a persistent decline in intermodal volumes compared to the same time last year. In contrast, carload volumes have been consistently gaining ground.
According to the report for the week ending July 1, 2023 — which included volumes for June 2023 — “11 of the 20 carload commodity categories tracked by the AAR each month saw carload gains compared with June 2022,” the AAR said.
“Recent rail traffic patterns point to contrasts in the broader economy,” Gray said in the report. “For example, rail intermodal is largely consumer goods, but recent spending on goods has cooled considerably and, with it, intermodal volumes. On the other hand, rail carloads of industrial products are performing much better, reflecting relative strength in the auto, mineral extraction, and other sectors.”
Sea-Intelligence
For the analysts at Sea-Intelligence, the container glut is likely no surprise. In a September 2022 post, The Maritime Executive reported that the research firm predicted this may happen.
“…ports and regulators have been looking at new steps to move the backlog of empties, but according to a new analysis from Denmark-based data analytics firm Sea-Intelligence, a return to normal in shipping could inundate ports with even more empty containers by early next year,” the outlet said.
“If transportation time is back to normal by early next year, we will see the release of 4.3 million TEU of excess containers into North America, which cannot be expatriated, within the planned network operations,” Alan Murphy, CEO of Sea-Intelligence reportedly warned. “This will potentially overwhelm empty container depots in the U.S., an issue which is already beginning to materialize.”
The Maritime Executive explained that the “massive shortage” of empty containers within recent years meant that carriers who were “begging for containers” placed orders for more, which were then “fed into the extended supply chains.”
“In its analysis of the eventual normalization of supply chains and the potential ramifications on the flows of empty containers, Sea-Intelligence highlights the decline in the time it takes from when the cargo is ready at the exporter until the importer takes delivery,” the outlet said.
“As transportation time is now getting shorter, these additional containers will be released back out of the supply chain, and they will start to pile up, primarily in Europe and the U.S.,” Murphy reportedly predicted.
More recently, in its “Sunday Spotlight,” Sea-Intelligence predicted that a “major capacity issue” is on the way.
“Now that we have entered July, peak season should be getting underway, but there is, as of yet, scant evidence of this happening,” Murphy said in a July 5 statement.
The statement included a graphic which depicted the “4-week average capacity deployment (future based on currently scheduled capacity by the carriers) for Asia-North America (combined Asia-North America West and East Coasts).”
Source: Sea-Intelligence on Linkedin
“What is really concerning is that capacity is on track to grow more than 20% as we approach the later stages of the – presently invisible – peak season,” Murphy said. “A similar theme is seen on Asia-Europe, where capacity growth is currently scheduled to cross an even higher 40% mark.”
Noting that overcapacity is nothing new, since “the cyclical nature of shipping makes it inevitable that capacity injection at times will exceed demand growth,” he added that such dynamics shouldn’t necessarily “tank the market.”
“The carriers have the ability to manage capacity, even in the face of a large supply/demand discrepancy,” Murphy said. “The developments in spring 2020 clearly showed this.”
In that light, he added that “the ball is right now very much in the carriers’ court.”
“Their current planning will certainly result in a sharply worsening market balance, and likely continuing declines in freight rates – something which could lead to loss-making territory in 2nd half 2023,” Murphy explained. “But this can be avoided by tactical use of blank sailings. Some of the idle capacity might then be sent to yards to get retrofitted for (even more) slow steaming, in preparation for the tightening environmental regulations.”
Xeneta
However, market analysts at Xeneta seem to believe that — in some contexts — buyers may hold the stronger hand.
In its Monthly Ocean Freight Market Pulse for week 26 published on July 3, Xeneta’s Patrik Berglund said the inability for GRIs [General Rate Increases] to “stick” was a reflection of the weak market.
“Transpacific rates to the US West Coast (USWC) and US East Coast (USEC) are another good illustration of the weak market, with a couple of unsuccessful attempts by carriers to push through GRIs in April/May and at the start of June,” Berglund wrote. “They would’ve stuck if the market was fundamentally stronger.”
After providing an in-depth analysis of various market dynamics, he said there are “no expectations [the] market will return to elevated levels.”
“Apart from some softening factors, for example on the Transatlantic-USEC trade where long-term contracts have also plateaued for the past six months, with no further reductions, there are precious few signals of improvement on the demand side,” Berglund wrote.
He said a Xeneta poll revealed that 61% of respondents “believe conditions will remain soft until at least Chinese New Year (i.e., into the tender season), while 33% think it will improve but with no strong peak season.”
“This aligns with our view,” Berglund added. “Some buyers may still see opportunities for further cost reductions if they close long-term contracts early in season before the market fully materializes. Those with indexed contracts may also see some downward adjustments later on.”
“So, it’s clearly a buyers’ market and most stakeholders seem to think nothing will change, at least in the short term,” he concluded.
In Xeneta’s most recent Weekly Container Rate Update published on July 5, Mariana Garcia said although carriers are still pushing for GRIs as July kicks off, they’re doing so “less forcefully than on the two past occasions. Market conditions have not improved since then and there is very little to suggest that this GRI will be more fruitful.”
Although Garcia noted a “big rate differential for retail,” she also underscored the impact of inventories and inflation on spot rates.
“The weak spot rates reflect a decrease of 26.9% in container volumes on the Transpacific in the first four months of the year,” Garcia said. “However, despite import volumes [having] fallen dramatically, US retail sales have continued to grow modestly, up by 2.2% in the first five months of the year.”
She explained that the “gap between imports and retail sales” is influenced by both a backlog of inventory — “meaning that retailers can still generate sales without necessitating new imports” — and inflation, “…equating to a fall in overall retail sales volumes on a year-on-year basis.”
“It will be interesting to see how US retail sales develop over the next months into the autumn and towards the Christmas season and if decreasing inventories lead to renewed imports and stronger spot rates in their wake,” Garcia said.
