FreightWaves SONAR: Container Import Weakness Could Peak in 2Q2020

Written by Greg Miller, Senior Editor, FreightWaves
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Container-sector recovery will be uneven. Photo by Jim Allen/FreightWaves

U.S. ports should see sharply lower container imports in the second quarter, but throughput could pick up in the second half—assuming there is not a major resurgence of coronavirus cases.

“The container shipping industry has spent the past month in the eye of the storm [and will] now face the full impact of the international spread of COVID-19,” said U.K.-based consultancy Maritime Strategies International (MSI) in its latest monthly outlook.

Then, after a “disastrous” second quarter, MSI expects “an uneven recovery in mainline volumes in the third quarter.”

“Attention is turning to how soon container trade will get back to normal,” the consultancy explained. “In reality, there will be a high degree of differentiation by region and by industry. Consumer retail goods are of course a huge driver of containerized trade, but their share of overall volume is sometimes overstated.

“Machinery, parts, semi-finished materials and chemicals all hold a significant share of the volume. Industrial production will likely be an early sector to return to normal output, but again, there will be differences: Goods tied to the construction industry may return relatively soon, but auto parts—hugely important on certain trades—could well see a prolonged period of subdued demand.”

In the U.S. markets, MSI projects that container volumes from Asia to the U.S. West Coast will drop 20% in the second quarter year-on-year, then increase 1% in the third quarter. MSI forecasts that volumes from Asia to the U.S. West coast will fall 17% in the second quarter, before reverting to a 1% gain in the following quarter. In the Europe-U.S. East Coast westbound lane, it expects container volume to fall 14% in the second quarter year-on-year, then recover to a 3% gain in the third quarter.

MSI noted that ocean carriers have been able to keep up container rates so far, despite falling near-term volumes, by “blanking” (cancelling) sailings to match vessel supply with cargo volume.

According to data from the Freightos Baltic Daily Index through May 1, the global average price to ship containers (SONAR: FBXD.GLBL) is flat year-on-year, with China-West Coast rates (SONAR: FBXD.CNAW) up 6% and China-East Coast rates (SONAR: FBXD.CNAE) down 5%. These are not the pricing patterns one would expect in the thick of an unprecedented global crisis.

Chart by SONAR

“While freight rates are likely to fall as demand pressure intensifies, we do not expect a collapse given the effectiveness of blanked sailings so far,” said MSI, with the caveat that “later in 2020, the picture is less clear.”

“Increased volumes will be set against more normal capacity, although deployed capacity on the major trades is likely to remain lower than in 2019 for the remainder of the year. Given the unpredictability over when and to what extent volumes return, it is possible that a surge in volumes could coincide with still-restricted deployed capacity by liners and drive an upswing in headhaul spot rates.

“On the other hand,” noted MSI, “the coming months will be a major test of liner company pricing discipline.” In other words, the allure of greater share at the expense of lower price could become too tempting to ignore.

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