Transforming Future Supply Chains: Ocean shipping’s outsized impact on future supply chains

Non-stop loading and off-loading of stacked containers on ships 

Transforming Future Supply Chains: Ocean shipping’s outsized impact on future supply chains 

Ocean shipping represents a mammoth component of international shipping. According to OCED, 90% of international trade ships by ocean carriers. That’s huge.

That makes an analysis of ocean shipping worthwhile. It can provide meaningful insights into how global supply chains are coping. 

Often, analyses look at microcosms to shed light on more significant issues. In this case, we’ll flip the coin. So, this post will look at a macrocosm — ocean freight. It also provides insight into how ocean shipping is shaping the New Normal.

This should provide a reliable assessment of both the health and future of ocean shipping and the global supply chain industry.

Assessing ocean shipping’s outsized impacts on future supply chains

Knowing how ocean shipping shapes supply chains will help you adapt to the future.

To assess ocean shipping’s impacts on future supply chains, we’ll look at several key factors. To begin with, we’ll consider the current economic situation. Then we’ll look into capacity, performance, and pricing.

That should give us a snapshot of ocean freight’s current status and how it’s shaping the industry.

Ocean carrier economic and market backdrop

The economy is a mixed bag at mid-year. Clouding current and future is the uncertainty surrounding China’s re-opening (JOC.com). Inventory levels are high at both Walmart and Target (JOC.com). 

Walmart’s CEO stated inventory is 32 percent higher than its year-over-year (y-o-y) plan. Target’s CEO, meanwhile, reported its inventory is 34 percent higher than its y-o-y plan. Those bloated inventories suggest a pending slowdown in imports.

Consumer demand at present remains strong as employment and wages are improving. The Bureau of Labor Statistics (BLS) reported May’s employment at 3.6%, with an increase of 390,00 jobs. 

Other big retailers also reported bulging inventories. Kohl’s reported an excess inventory of 40 percent. Clothing retailer Abercrombie & Fitch reported an excess of 45 percent. And, cooler and drinkware maker, Yeti, reported excess inventory at an astounding 125 percent (JOC.com).

At the moment, the main question is will imports surge or not. Those suggesting a surge is in the offing point to strong demand coupled with pent-up demand. And as China opens up for full-blown trade, that surge may well occur.

Proponents suggesting a gradual inventory build-up believe well-stocked warehouses will tamp down demand and future purchase orders. 

A third group believes inbound traffic will ebb and flow between now and December 2022. For example, trade will increase with China’s re-opening and ease in mid-summer. Then as peak season arrives, imports should rise again only to decline by year’s end.

This mixed bag reinforces volatility and uncertainty through 2022. As a result, capacity and pricing will reflect.

Ocean carrier capacity improving

The present and future both appear promising for capacity availability. So, constrained capacity has eased. Improvement has resulted from blank sailings and normalization of port operations as bottlenecks get sorted out. According to Kurt McElroy, Executive Vice President at Apex Maritime, “Nothing is moving at a premium.”

The future appears promising, as infrastructure spending focuses on improving logistics flows, repairs, and upgrades at ports and distribution centers should improve effectiveness. And that should benefit capacity availability.

Also, Sea-Intelligence reports trends indicating rising levels of capacity. In its Maritime Analysis report, weekly capacity has risen to 650,000 or 21 percent. That data reflects the last two weeks of May 2022.  

While capacity constraints remain, they are improving, which will affect pricing favorably. That should benefit shippers and consumers alike.

Moderating ocean carrier pricing

As capacity constraints are relieved, pricing, too, should see relief. They should at least moderate from their recent highs. So, as logistics and supply chain operations improve, pricing pressure should ease.

According to Container Xchange, container prices have already declined 30 percent. That decline is because of the build-up of container inventories at U.S. depots. As empty containers accrue, carriers are shipping them to where the demand is. That increases availability, helping to drive prices down. 

This should extend from the near- to mid-term. Beyond that, capacity availability will decline, and pricing will increase.

Counteracting that, inflation is putting upward pressure on prices. For example, according to the BLS, pallet prices are now at record levels. Pallets range in price from $12-$13 in the mid-Atlantic and $18 – $20 in the West. 

As ocean carrier pricing moderates, that should provide relief for shippers and consumers. 

Now let’s turn to trends in ocean carrier performance and growth.

Ocean Carrier Performance and Growth

Overall, reliability performance was irregular, depending on the trade lanes and carriers measured. Performance in some trade lanes experienced better performance, whereas some experienced worse performance. As of April 2022, reliability seems to have peaked.  

Citing a Sea-intelligence maritime report, JOC.com reported global reliability at 30.4 percent for January 2022. That was a low. Then, in March, reliability came in at 35.8 percent, followed by 34.4 percent in April.

While global maritime reliability has stabilized at about 33 percent, ocean service is expanding. In particular, regional ocean carriers are expanding their services. One example of growth is Regional Container Lines (RCL)

RCL operates out of Thailand, servicing the ASEAN-Gulf region. That’s in addition to service to India. RCL touts its expansion as having “… one of the best transit times… for Asian trade out of the Middle East and India. Shippers are taking advantage of this RCL’s growth, as reflected by its outbound value. In April 2022, the export value reached a record $40 billion.

Ocean carrier performance and growth are varied. Performance and growth are adapting to conditions in real-time. As they do so, volatility and uncertainty continue, albeit at a more tolerable pace. That means ocean freight is coping and adapting carefully as it shapes the New Normal. 

How are you adapting to the dynamics of ocean shipping and the New Normal?

Ocean shipping overshadows all other modes of transportation. It dominates global trade by an overwhelming margin. And that outsized profile is shaping the New Normal. 

Current and future supply chain operations are becoming more responsive. They are becoming more agile and more resilient. And they’re becoming more efficient and customer-centered. 

The team at American Global Logistics understands the dynamics of ocean shipping. Many parts and pieces are affecting daily operations. 

We track daily operations and market conditions to anticipate trends. Anticipating trends in ocean shipping gives AGL and you a competitive advantage. 

Contact us to learn more about how we can help you stay ahead of the trends shaping the New Normal.