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Record trans-Pacific rates pricing out more shippers

Home News Record trans-Pacific rates pricing out more shippers

Despite US inventory levels being near all-time lows, an increasing number of importers are being priced out of the trans-Pacific shipping market due to high transportation costs, ocean freight experts said.

For importers of low-value goods, ocean and inland costs are now accounting for 20 percent or more of the goods’ retail value, adding to the inflationary pressures now facing US consumers.

Daniel Krassenstein, global supply chain director of bulk-bag manufacturer Procon Pacific, said during JOC.com’s Midyear Container Shipping Outlook that ocean freight rates from India to the US West Coast have tripled to $7,500 per 40-foot equivalent unit. With the value of plastic bulk bags in a container typically around $40,000, freight rates and surcharges are starting to account for nearly a quarter of landed costs.

“The freight value of the cargo has jumped from 6 percent to 25 percent,” Krassenstein said. “Someone is eating that cost. Either we’re absorbing it, which we can’t, or our end-user is, and that is eventually going to trickle down to the US consumer who is going to be hit with inflation.”

Bulk bags are not the only commodity facing those higher costs. Alan Murphy, chief executive officer of maritime consultancy Sea-Intelligence Maritime Analysis, said importers of appliances, assembled furniture, and automobile parts could be seeing ocean freight rates range between 20 to 50 percent of the value of their cargo, depending on whether the goods are low- or high-value.

According to Xeneta’s ocean freight indices, spot rates from Asia to the US West Coast sat at $4,500 per FEU as of May. The Asia-US West Coast spot rate hovered around $1,000 per FEU from January 2019 through March 2020.

“Shippers in some instances are being completely priced out by the combination of spot rates plus equipment surcharges,” Murphy said. “Up to 25 percent of the retail price is transport. Nobody can survive that.”

However, thanks to stimulus measures and the lack of spending options outside the home, US consumer spending growth on durable goods was up close to 30 percent from 2019 levels in May, Murphy said.

Inventory restocking keeping trans-Pacific busy

With COVID-19 lockdown restrictions easing, there has been some small shift away by US consumers to greater services spending, according to IHS Markit economists. June retail sales for home furniture fell 3.6 percent from May according to the most recent US Economics Headline Analysis. IHS Markit is the parent company of JOC.com.

Home improvement and sporting goods sales fell 1.6 percent and 1.7 percent, respectively, over the same period, IHS Markit said, adding that “[f]urther corrections are likely as consumers pivot toward service-oriented consumption.”

But high consumer demand has depleted US retail inventories, Murphy added. The main indicator, the inventory-to-sales ratio for retail goods, was at 1.09 this May, the second-lowest ever after April’s 1.07 reading in 28 years of such data. From 2019 through to the start of the pandemic, the inventory-to-sales ratio was trending between 1.4 and 1.5.

Murphy said it will be necessary for retailers to build up those inventories to pre-COVID-19 levels thanks to the increased consumer preference for online shopping and same-day delivery. The boost from US consumer spending has translated into approximately 500,000 TEU of new monthly demand from North America between September 2020 and May 2021, he added.

“Even if all the lockdown restrictions end tomorrow, that would not mean the online shopping boom would end,” Murphy said. “Inventory has been drawn down to unprecedented levels. There would still be three to six months of inventory restocking to drive trans-Pacific demand.”

Read full article here.

Source: Journal of Commerce

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