Key insights:

  1. Recent retailer reports of inventory gluts and falling sales for certain goods suggest that the dip in ocean volumes and falling container rates of the last months were not driven solely by the drop in China’s manufacturing. 
  2. If these signs reflect a real shift in consumer spending, as the pandemic wanes in the west and inflation pushes money to necessities, then the possible surge of imports as Shanghai reopens and the feared congestion and chaos of peak season may not materialize.
  3. But conflicting indicators abound: NRF projections for imports through the summer remain extremely elevated, and ocean spot rate futures, and contract rates remain high too. 
  4. What to make of all this? Changes in inventory and spending are clear signs that things are changing. But, there is likely enough demand and congestion to increase delays and ocean rates as Shanghai reopens and peak season progresses, though perhaps not to the extremes seen last year. Taken together, this mix of sometimes competing indications may signal the start of a gradual return to a new normal.

Asia-US rates:

  • Asia-US West Coast prices (FBX01 Daily) fell 11% to $9,574/FEU. This rate is just 9% higher than the same time last year.
  • Asia-US East Coast prices (FBX03 Daily) dropped 14% to $11,908/FEU, and are 28% higher than rates for this week last year.

    • Analysis

The container market is in flux, though it seems no one can be sure what the multiple signs will mean.

While some measures record a drop in orders for US-bound imports in April and May, enough arriving and backlogged containers were still processed in April to put volumes 5% higher than last year. May and June volumes are projected to be even higher than April, 7.5% greater than in 2021 and tied for the third highest monthly volumes on record, with July and August not far behind. 

The recent dip in orders almost certainly reflects the lull in manufacturing while Shanghai was shut down. But the long anticipated shift in consumer spending from goods to services as the pandemic fades seems to have surfaced in the last couple months as well, and could also mean that part of the dip was due to a decrease in underlying demand.  

Major retailers like Target and Walmart report carrying too much inventory of certain goods like furniture and electronics. Target is canceling new orders and working to shed inventory. A shift to services together with inflated prices for necessities is driving some of that overstock.  But some spending is moving to increases in demand for other types of goods like apparel. 

Many observers have expected a surge in volumes out of China as Shanghai reboots. But if the net underlying demand actually deteriorated during the lockdown, or enough importers had already pulled orders forward, then there may be no surge in the short term and less chaos and pressure on rates during peak season when compared to last year’s peak. 

On the other hand, the volume projections for the summer remain higher than last year and well above pre-pandemic levels. Port congestion is still a problem, and any significant increase in traffic could mean an increase in delays and prices as capacity is stuck waiting in line. 

Same goes for container rates. On the one hand, transpacific rates have plummeted during the lockdown. Asia - US West Coast rates fell another 11% this week and are down nearly 40% since late March, and transpac air cargo rates fell 38% in May to less than $9/kg too. If dropping consumer demand is the main driver then we should expect rates to keep falling. But on the other hand, analysis of the freight futures market suggests prices aren’t set to decrease much more in the near term, should climb later in peak season, and should remain elevated into next year.  Contract rates remain elevated too.

What to make of all this?

Inventory gluts and shifts in consumer spending are clearly new developments and concrete signs that inflation and the wane of the pandemic in the west are starting to change the market. On the other hand, there is still likely enough demand and congestion to increase delays and ocean rates as Shanghai reopens and peak season progresses, though perhaps not to the extremes seen last year. Taken together, this mix of sometimes competing indications may signal the start of a gradual return to a new normal.