Vessel Shortage to Turn Into Surplus Next Year
Retailers and apparel companies have been faced with a number of challenges this year to bring in merchandise on time for the holiday season.
Chinese factories, many short on workers, have been delivering goods as much as one month late.
Shipping lines, trying to make up for last year’s $15 billion in losses, have reduced the number of cargo-container ships plying the waters, resulting in tight capacity. It’s not unusual to hear of goods getting bumped from ships and stranded at a far-flung Asian port for a week or two.
Cost-conscious apparel importers have been trying to avoid peak-capacity surcharges, which can add as much as 10 percent to 20 percent to shipping costs.
The result is that this year’s peak shipping season for U.S. importers is shifting from the August-October period to July. At the ports of Los Angeles and Long Beach, Calif., the busiest cargo-container hub in the United States, peak season was predicted to be August, instead of September or October.
“There is sufficient evidence to suggest that importers anticipated the peak season and bought early, partly as a result of a fear of lack of capacity and containers but also as a means to avoid the hefty peak-season surcharges announced by all the carriers,” said Ben Hackett, founder of Hackett Associates, which tallies the monthly Global Port Tracker for the National Retail Federation.
Indeed, Philip Dumas, director of liner shipping and supply chain at Drewry Shipping Consultants in London, noted that container freight rates skyrocketed 94 percent in the last year on the trans-Pacific route between Asia and the West Coast. In September, it cost $2,612 to ship a 40-foot container from Hong Kong to Los Angeles, Dumas said.
“I know that from our apparel clients that it is not only raw materials and labor costs which are going up,” Dumas said in an e-mail. “Shipping costs are also a major cost-inflation factor.”
Another factor affecting shipping schedules has been rumblings of labor strife at the ports of Los Angeles and Long Beach. Importers have been keeping a watchful eye on the drawn-out contract negotiations between the 900-member clerical union and the companies that operate at the two ports.
The clerks’ contract expired on June 30. There was an abbreviated clerk walkout in July at five container terminals, where picket lines were honored by longshore workers. But an arbitrator deemed the walkouts invalid, and everyone returned to negotiating.
Since then, the clerks and their employers have been having informal meetings to sketch out the terms for new contracts, said Steve Berry, the negotiator for the shippers and port employers. “We’ve made it clear we are ready to resume [negotiations] when they are,” Berry said. “We do know that the uncertainty surrounding this has resulted in some rerouting of freight to other ports.”
Cargo capacity rising
While cargo capacity was extremely tight earlier this year, the shipping industry has been deploying bigger ships, resulting in more slots being opened up. Paris-based Alphaliner, a key source of date and information for the shipping industry, expects a return of overcapacity in shipping the rest of this year and next year.
“The number of ships that are idle has really dwindled quite dramatically,” said Paul Bingham, a global-transportation expert with Wilbur Smith Associates, which tracks shipping activity. “The larger ships, the ones that carry more than 6,000 containers, have been redeployed into routes, in some cases pushing out smaller ships. hellip; The carriers are going to be back in a similar situation where they risk having too much capacity like in early 2009, and then there will be downward pressure on rates.”
In addition, new shipping companies are popping up, taking advantage of cheap leasing terms for anchored vessels. For example, P.O. Shipping, a carrier owned by the Chinese government, recently started weekly service between China and the Port of Long Beach. The company is using vessels that carry between 2,700–3,500 20-foot containers. They are expected to bring in as much as 150,000 20-foot containers to Long Beach in a year.
New shipping lines such as P.O. Shipping as well as bigger vessels have helped the cargo-container fleet expand 19 percent this year, with demand expected to end 12 percent higher this year, Alphaliner said. Next year, the cargo-container fleet should grow 9.6 percent, while shipping demand will inch up 6 percent to 8 percent.
Meanwhile, cargo capacity on the trans-Pacific route is expected to hold steady compared with last year, said Mark Page, director of liner shipping at Drewry Shipping Consultants.
He estimated cargo capacity this year will pencil out to about 15,618 20-foot containers, which is even with last year’s 15,620 containers but slightly below the 16,655 containers that were used to ship cargo from Asia to the West Coast in 2007.
