The festivities around the Chinese Year of the Dragon are in full spectacle, as the country indulges in a ten-day celebration around its most popular holiday. As detailed in the previous market update, the Chinese New Year (CNY) is a lynchpin event for global supply chains as logistics networks and manufacturing activities from mainland China wind down for a few weeks.
While the CNY ends on Feb 18, normal manufacturing and shipping operations are expected to resume on Feb 22. However, considering the Lantern Festival holiday is on Feb 24, there is a high chance of subdued manufacturing activity and reduced worker capacity at factories and ports for the entire week, ending on Feb 25.
The initial aftermath of the CNY holidays is expected to be more challenging to navigate, as disruptions from the three-week supply chain shuttering cause ripples in the freight market. We can fully anticipate an accumulation of backlogged cargo during the holiday season, increasing demand for freight forwarding services. As service providers work to clear this backlog, there can be freight delays — especially in the opening week after the holidays.
Delays are already a given across several major shipping lanes — thanks to geopolitical problems around the Suez Canal and drought issues in the Panama Canal. This has meant shippers buying from the Far East, SE Asia, and the Indian subcontinent have been impacted and will continue to bear the brunt of market volatility.
While shippers using the trans-Pacific and landing cargo on the US West Coast have reasons to cheer, they have a few challenges to contend with regardless. For one, the recently ratified labor contract between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) has created stability in the West Coast ports, pushing shippers to move freight back to the region.
With the WC ports losing over one million TEUs in the aftermath of the labor dispute, gaining them back will strain operations. Why? Because shippers who were moving freight via the US East Coast and Gulf Coast are also switching to the WC due to the aforementioned Suez and Panama challenges. Intermodal shipper rates have worked in the favor of these shippers, with domestic rail contracts priced close to 2019 levels and considerably lower than trucking contract prices, which incidentally have been scraping the bottom for over a year. Shippers can choose to get their cargo to WC ports, put them on intermodal, and get it delivered to them quicker and cheaper than they could via their traditional route.
This is reflected in the Jan ‘24 volume share of WC ports versus the East and Gulf Coast ports. The WC ports increased their share by 3.3% to 43% of the total US imports, while the East and Gulf Coast ports decreased by 2.5% to a 42.4% overall share.
While volume share to the WC has increased, the imports flowing in from China have increased too. The last few months have been characterized by a sustained trend of increasing Chinese imports to the US. In Jan ‘24, Chinese imports to the US saw a month-over-month increase of 14.9%, a number that is casting questions on nearshoring and diversification strategies discussed over the last couple of years.
The macroeconomic indicators are looking favorable to US import growth. The Global Port Tracker (GPT) published by the National Retail Federation (NRF) forecasts that US imports will see a 20.4% year-over-year growth in Feb ‘24. While an astonishingly high number, Jan ‘24 saw a 7.9% growth in volumes from Dec ‘23, which is a seven-year high.
It is expected that freight rates that shot up at the start of the Red Sea crisis could slowly inch down, thanks to the new vessels that container liners continue to receive this year. However, there’s also the fact that demand could increase quite considerably this year, and if the WC port throughput continues to increase at the expense of other ports in the country, it could quickly devolve into a bottleneck.
As a shipper, it is essential to exert caution as the trade environment continues to be impacted by a myriad of factors. It is important to closely monitor these fluctuations and adapt supply chain strategies in a way that gives predictable lead times at dependable prices. Proactive planning and communication with partners can help businesses navigate these changes effectively. Connect with us at Silq to transform your logistics operations.
