There are new disruptions on the horizon
As the world becomes more familiar with globalization, it's important to remember that ocean shipping significantly impacts more nations’ supply chains than ever before. When instability and unavoidable issues arise, it affects shipping rates and strategy.
While 1Q maritime issues have continued into 2Q, new events this quarter may result in supply chain disruptions. Continue reading to learn about events currently affecting the maritime market that may influence your shipping strategy.
1Q ocean troubles continue into 2Q
The Houthi attacks on maritime vessels that began last quarter continue to disrupt maritime transportation in 2Q. Vessels are still being sent around the Horn of Africa to avoid the Red Sea and the Suez Canal. This leads to a longer voyage, which has started a shortage of empty containers.
As a result of the Houthis threat, the Panama Canal has been congested with overflow freight from overseas to the East Coast. At the same time, a very dry season, coupled with the effects of El Nino, has caused lower-than-normal water levels in the Panama Canal. This trend may go into 2Q as ships continue to use this route.
Shipping contracts were up at the end of April, and rates increased with these negotiations. This means that rates started off in May in a higher position than previously, leading to further rate hikes as these issues persist into 2Q.
4 events shaping ocean transportation
Four current events are affecting maritime transportation. These influences may continue to raise rates through the traditional maritime peak season (mid-June through the beginning of September). This year we are facing an unprecedented early peak season that started in the last two weeks of April.
1. Post-pandemic inventories remain low
Inventories are not fully stocked like they have been historically. This may be partly due to the just-in-time approach that many retailers have adopted since 2020. This low inventory is contributing to the current increases in the ocean freight rates as shippers start to rebuild their backstock.
2. Tariffs may go up for Chinese goods
With the U.S. presidential election on the horizon, many Chinese shippers are cautious of any upcoming tariffs that may result. Because of this, they are maxing out capacity to ship goods to the U.S. before potential tariffs are implemented.
This increase in shipments from China to the United States is causing empty equipment shortages. When empty containers aren’t available, rates typically rise to combat limited capacity.
3. Mexico and China are building upon their trade partnership
Mexico is now the largest trade partner with the U.S., and China also has its eyes on Mexico. Nearshoring is causing a big change in the transportation sector, and many new factories are being built south of the border. Product elements are still being manufactured in China, but now China is choosing to assemble these pieces in factories built in Mexico.
This method helps eliminate potential tariffs on Chinese goods. Once these goods are sent to Mexico, the product becomes Mexican-made, even if the components are still manufactured in China.
Statistics show China’s continued and fast-accelerating program to work with Mexico as a go-between for shipping goods to the United States. In 2022, China’s trade route to Mexico experienced an increase in volumes of 3.5%. We saw a 34.8% increase in this route in 2023. This year alone indicates that volumes along this corridor have already increased by about 60%.
This growth may cause rates to rise, further fueling the empty container shortage in Asia.
Learn about ArcBest’s Mexico coverage and what we can do to keep your Mexico-U.S. shipments moving.
4. Rollovers are becoming more prominent
Another potential disrupter is rollovers, which occur when a container isn’t loaded onto its planned vessel and goes on the next one instead. Rollovers can cause a domino effect of lack of capacity.
Rollovers are becoming more frequent in certain ports in China. Overbooking is a major reason, but they can also be caused by capacity constraints or operational issues. Blank sailings can also cause rollovers.
If you’re shipping in multiple containers, your freight may be at risk of delay during peak season. To combat this, you may want to limit to 4-5 loads per vessel. This is because certain carriers may choose to roll over multi-container shipments to free up vessel capacity. Working with a trusted provider can give you better visibility into these issues as they arise.
What is the significance of these events?
You may wonder how these events will affect you. As China increases its efforts to avoid tariffs and amps up nearshoring opportunities, empty containers will likely be more difficult to find. Transpacific reliability and available capacity are expected to deteriorate during the summer months, leading to delays in shipping cargo via ocean, along with anticipated high rates and similar disruptions to those experienced during the pandemic.
The maritime market is already operating off post-pandemic highs, so any rate increase will create historically high numbers since 2020. We are still in the early stages of this trend but be prepared in case there is a need to spend more on the same containers soon.
Although there is no getting around higher rates or a lack of empty equipment, using a trusted provider with access to different ocean liners and experience in peak season shipping can be a huge help. Your experienced provider has been through shipping cycles before and can guide you in mitigating negative impacts on your supply chain. Access to multiple carriers is key, as it is the only way to access more capacity and increase chances of successful shipments.
Ship ocean freight confidently with ArcBest
Let ArcBest be the trusted transportation provider you can trust when entering peak season. With access to 80% of transpacific carriers, we are here to help you find capacity and ease negative effects on your supply chain.
In addition to our full container load (FCL) service, we can ship smaller and more frequent shipments using less-than-container load (LCL) from our main Chinese and Southeastern Asian origins. Once the cargo arrives in the U.S., we can transload containers into FTL, LTL, Intermodal and expedite shipments to reduce the overall transit time and improve your supply chain. We also offer international air for critical shipments.
Contact us today for help shipping your next ocean load.
