To Our Valued Customers:
We know the situation impacting all of us is evolving hourly it seems, we wanted to continue to advise you all of what we are seeing and experiencing in the market. At Laufer, we are committed to providing you with as much information as possible as quickly as possible, understanding of course that the events are quite fluid and changing rapidly.
So here is a shortlist of what we are seeing so far today:
Market Conditions: Volume forecasts are now being digested by ocean carriers resulting in substantial capacity reductions over the next several weeks. Blank sailings and temporary service suspensions are being announced daily since the last week of March. The anticipated surge in container volumes will also be arriving in hard-hit regions over the next two weeks potentially impacting warehouse and terminal operations fluidity. Due to the blank sailings from Asia back in February, some terminals in Southern California continue to limit empty returns causing dray companies to continuously search for appointments to avoid per-diem and additional chassis costs.
Ocean carrier financial volatility concerns: Blank sailings and service suspensions ease operational costs for carriers however the lost revenue and reduced cash flow undermine financial stability. All ocean carriers are being negatively impacted by COVID-19 and even profitable carriers such as Maersk Lines are seeing rating outlooks changed from “stable to negative” by Moody’s Investor Service. CMA which already has substantial debt on their books will have additional hurdles to jump on receiving additional financing if the market doesn’t turnaround in the short-term. CMA debt was trading at approximately $.65 cents on the dollar recently!
Diversity within your supply chain: With many uncertainties in the market and with as little as two weeks’ notice on service suspensions and blank sailings it’s critically important to have diversification within your supply chain as we look through a hazy 2020 shipping season. Ocean carriers have finalized the shipping seasons Pro-forma schedules on the Transpacific and now is an important time to look at your port pair market options. The delays caused by relying on one ocean carrier or one alliance option can result in substantial delays and leave shippers scrambling for options at the least ideal times since market disruptions are usually difficult to predict. A review of your ideal routing options along with alternate services should be reviewed closely with your logistics partner and designate primary ocean carriers within at least two alliances (depending on port/pair annual volumes) for proper diversification to cover your bases. The last thing you want to face is looking for an alternative service during a market disruption.
Blank sailings: As discussed last week, ocean carriers are quickly reacting to shipper forecasts by announcing a substantial capacity reduction through Mid-May. Between Ocean & THE Alliance over 23 blank sailings through April alone! 2M Alliance announced the temporary suspension of an East Coast service through the remainder of the 2nd quarter along with several blanks in April through early May. The ocean carrier alliances create a great deal of flexibility for quickly adjusting capacity based on market demand which we are witnessing today. We will see in the short-term if too much capacity is being removed or not enough as future announcements on blank sailings and suspensions will provide the clues, stay tuned…
Market rates: Surprisingly ocean carriers did implement a general increase on April 1st however new booking drop off’s and weak volume forecasts being provided by shippers has quickly eroded the increase with market rate expecting to slowly erode back to March levels in the short-term. We don’t expect market rates to drop off significantly as capacity withdrawals market wide will avoid such a pitfall. With long term fixed rate negotiations well underway is another reason we don’t expect a market rate collapse as this never bodes well for long term negotiations.
We truly appreciate all your support. Should you need any additional information or guidance, please feel free to contact your Laufer sales or team member.