As 2022 comes to its last lap, there are mixed signals for supply chains globally. While some things are doing well, like port congestion finally easing off, and shipping rates dropping, other problems still persist. For one, global inflation is forcing various economies to slow down. As a result, there is an excess of containers and an overall logistics and supply chain slow down as well. Peak season has not lived up to its hype this year, as retailers and manufacturers focus on disposing of excess inventory.
According to maritime data group Container Trade Statistics, global container volumes fell 8.6% in September, reaching their lowest level since February, when shipping is typically at its strongest. This was due to waning consumer demand and retailers dealing with excess inventories at crammed warehouses. The quick falloff is severely impacting imports into the US. Descartes Datamyne, a research organization, reports that compared to the annual high in August, container imports from China into the U.S. decreased by about 23% in October.
The weekly Shanghai Containerized Freight Index, which measures shipping prices out of China, recently dropped to $1,443.29, about one-third the level it hit in early June. The separate Drewry Worldwide Container Index measuring the average price to ship a 40-foot container, reached $2,773 in early November, the lowest level in two years. Drewry, a UK data provider, said the average rate to ship a 40-foot container from Shanghai to Los Angeles had fallen to $2,262 in the first week of November from $11,197 in late January.
The decline is coming during the so-called peak season when business ramps up ahead of the holidays. Now, truckers are forecasting what many are calling a muted peak. The impact is cascading across U.S. domestic supply chains, dimming cargo volumes for trucking companies and railroads. It is also bringing down the hefty freight rates that have crashed companies’ transportation budgets over the past two years, presenting an opportunity to cut logistics costs for those retailers and manufacturers that are looking to move goods.
A freight market marked by diminishing demand and lower prices presents opportunities for shipping customers to get their logistics budgets back in order, assuming, of course, that underlying demand from consumers and factories holds up.
While rates have fallen, they are still steeper than pre-pandemic rates, so logistics businesses need to be aware of the various ways they can cut costs at this time. For one, industrial developers have poured millions into warehouse spaces across the US. But there are warning signs that space may not be as crucial after all. Logistics players need to be careful signing on to new warehouse spaces at this to maintain equilibrium in their business.
For retailers and manufacturers with the capacity to do so, spreading out with multiple logistics partners is the best option as markets remain volatile, despite declining spot rates. Finally, all players need to keep a watch on the volatile commodity markets. Stability in those markets will provide a good guide for the direction of supply chains, and company costs, next year.
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