As the rail and trucking industries scramble to catch up, the freight industry expects major, widespread disruptions. Ocean carriers are beginning to blank sailings, or cancel scheduled voyages. This trend does not bode well for U.S. exports on their way to Asia. It’s blocking boats moving in both directions, cutting off supply chains that rely on quick shipping.
As the U.S.-China trade war deepens, major global container shipping alliances are realigning their networks. Notably, the Ocean Network Express (ONE) has suspended a route that was set to resume in May, which includes critical ports such as Qingdao, Ningbo, Shanghai, Pusan, Vancouver, and Tacoma. This decision is indicative of the growing pressure on ocean carriers to streamline operations in response to falling demand.
Maritime shipping involves a high degree of upfront investment. It usually takes months to set up dedicated routes to move that cargo through certain ports. Ocean carriers face a dilemma: to generate a return on investment, they must operate fully loaded vessels. Failure to fill their massive ships becomes an economic impossibility to deploy them. As a result, carriers may need to return to less efficient, smaller vessels or change their sailing frequency in order to reduce losses.
Alan Murphy, CEO of Sea-Intelligence, stressed the unpredictability of the current shipping environment.
“We have no way of knowing how significant this drop in orders will be on vessel schedules,” – Alan Murphy, CEO of Sea-Intelligence.
Murphy further explained that no one is saying container volumes will stop overnight. He does expect a big drop off in shipments, which will be causing a lot of blank sailings coming in short order.
China has been and continues to be the most important partner in the U.S. containerized import trade. It now represents closer to 30% of all of our imports, a significant decrease from 37% in 2018. Moreover, it’s around 54% of U.S. containerized imports from Asia, a share that’s decreased from 67% three years ago. These recent changes in trade patterns are continuing to create a major ripple effect. These changes are taking a toll on every sector of the supply chain, including trucking, rail services, and warehousing.
Indeed, just a few weeks ago the World Trade Organization (WTO) issued a dire warning that the outlook for global trade has “deteriorated sharply.” This line from the above statement sums up the unintended consequences brought on by the tariffs that the Trump administration has proposed. It examines their impact on international shipping lanes. Analysts believe that should the higher tariffs go into effect—which now seems as likely as not within 90 days—more cancellations and changes in vessel scheduling will follow.
Peter Sand, chief analyst at Xeneta, said they are hitting shippers in an unprecedented way.
“The fact that the lower end of the market has been rising shows the heat is on,” – Peter Sand, chief analyst at Xeneta.
He elaborated that shippers, regardless of size, are required to pre-order to mitigate the unpredictability of the market. This bogus scarcity has led to a short-term spike in shipping rates as businesses race to find room on the few vessels still moving.
Bruce Chan, director of global logistics and future mobility for Stifel, backed up those worries about what future import volumes may look like.
“That uncertainty is beginning to manifest in blanked container ship sailings on core eastbound transpacific lanes, in our view, opening the potential for a double-digit decline in inbound containerized imports as early as next month,” – Bruce Chan.
This forecast illustrates the unpredictable nature of shipping logistics. It further highlights how quickly trade flows can shift and how vulnerable U.S.-Asian trade is to major upheaval.
In recent weeks, “mid-low” ocean freight rates from Vietnam have skyrocketed. They’ve jumped 43% since March 30. With volatility in shipping costs and demand still up in the air, ocean carriers will likely keep having to scrutinize their cost structures for some time.
The changing paradigm of global trade requires constant reassessment with a quick pivot for ocean carriers. They can reroute vessels—sometimes called a “vessel string”—to respond to impacts of shifting demand. Additionally, they are required to cancel these routes if any tariff implications are triggered.
As the situation develops, stakeholders across the supply chain must remain vigilant and adaptable to maintain efficiency amid growing uncertainties.
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