Peak Shipping Season Runs Aground as Ocean Lines Pull Capacity
Date: Wednesday, June 17, 2020
Source: The Wall Street Journal
Bloated inventory levels and low import expectations have container lines canceling sailings when carriers and retailers are usually bulking up for the fall
Ocean container lines are bracing for muted demand during the usual peak shipping season heading into the fall, with supply chains still rattled by the coronavirus pandemic and retailers in the U.S. and Europe reining in restocking plans.
Shipping lines that move the vast majority of the world’s manufactured goods have canceled more than a quarter of all sailings on Asia-to-Europe and trans-Pacific lanes, the world’s biggest trade routes, since the beginning of March, according to maritime data providers.
Copenhagen-based research group SeaIntelligence Consulting says the cancellations equate to the withdrawal of more than 4 million containers of capacity and that carriers have continued to drop departures scheduled for the third quarter, signaling expectations of continued weak demand by major Western importers.
“Fears of a virus resurgence means retailers will bring in only what they know they can sell,” said Lars Jensen, ” chief executive of SeaIntelligence. “There is a muted run-up to Black Friday in the U.S. that kicks off the holiday shopping and we expect container volumes to be down 10% overall this year. There is no peak season, just fleet management to cut costs.”
The summer months are typically when shipping activity picks up steam as retailers begin to bulk up inventories for an expected pickup in consumer demand later in the year, starting with back-to-school sales and leading into the year-end holidays.
But widespread store closings under coronavirus lockdowns have battered demand and crashed traditional planning for the fall. The 17.7% month-to-month increase in retail sales in the U.S. in May still left overall sales below pre-pandemic levels, and the retail inventories-to-sales ratio in April soared to 1.68, the highest level since 1996 and an indication that warehouses across the country were bursting with merchandise.
In the European Union, retail trade fell 11.1% in April from March, according to official statistics agency Eurostat.
As well as weak demand, retailers are dealing with supply chains that have been scrambledby the coronavirus. Some deliveries have been delayed by up to two months because factories in China and elsewhere were mostly closed in March and April.
“We’ve just opened after three months and we are getting deliveries of spring apparel,” said Varvara Petridi, who owns two high-end fashion shops in Athens, Greece. “We’ve got lots of unsold light suits and dresses, but no bathing suits, sandals and towels. They’ll come in August, if we are still in business. It’s a disaster.”
Seaborne import figures since the lockdowns began suggest retailers are hunkering down.
Major U.S. ports handled 1.61 million container imports in April, according to the Global Port Tracker report prepared by the National Retail Federation and Hackett Associates, down 7.8% from a year ago. The retail group forecasts annual declines for May, June and July of 14.6%, 12.9% and 17.4%, respectively, with volumes remaining well below last year’s levels for the rest of 2020.
The falling demand has pushed ocean shipping lines to sharply retrench their operations, a departure from previous downturns that have seen carriers fight for diminishing container volumes by offering lower prices, sending ships out with freight rates that barely covered operational costs.
Now, carriers are holding back ship orders as well as dropping services as they focus on managing capacity. New liner orders are at multiyear lows, according to London-based Braemar ACM Shipbroking.
“There are about 300 container ships on order, which is the lowest in at least 20 years,” Braemar’s container analyst Jonathan Roach said.