Despite concerns surrounding port congestion and worries about a West Coast dockworker strike, container dwell times at the busiest ports on both U.S. coasts are getting shorter.
Dwell times at the Ports of Los Angeles and Long Beach, as well as the Port of New York and New Jersey both hovered around eight days on March 1, 2022, according to analysis from Flexport. On the West Coast, these times have dipped nearly two full days to roughly six on average by Feb. 1, 2023, while East Coast dwell times declined six days to just two.
However, while importers are likely to be overjoyed with the news, they will have to keep a close eye on this for the duration of the year. Nathan Strang, director, ocean trade lane management at Flexport, warned in a recent webinar that importers must account for a potential cutback in gate availability so they don’t get squeezed out of a spot at the terminals.
“As vessel volumes decline, so does gate availability,” Strang said. “If you’re unfamiliar with how the ports operate, the inbound containers pay the labor costs—to run the cranes, the gates, all the drivers and clerks, etc. If inbound volume declines, that also means the available pool to pay for your labor has declined. That means they’ll do things like restrict night gates, second shifts and weekend gates with less labor available.”
Less labor may either flatten either dwell time or even a reversion in turn times, according to Strang, especially on the West Coast where total volumes have declined further.
Beyond dwell times, Strang said that transit times have been impacted by the diversification of sourcing away from China, more so than shipping rates.
“A lot of shippers are used to routes like Shanghai to L.A. or Yantian to Seattle transit times,” said Strang. “Suddenly you’re shipping out of Malaysia, Indonesia or Vietnam, and your transit times are 2-3X. That was something that I saw a lot of clients just weren’t ready for. They didn’t anticipate that. If you are looking to shift production, it’s important to engage with your freight forwarder very early in that.”
Expect more blank sailings in February
The deployment of 20-foot equivalent units (TEUs) is on par so far in 2023 with the fourth quarter of 2022, according to Sea-Intelligence data cited by Flexport. But across the board, freight supply transported from East and Southeast Asia to North America has remained volatile. The week-over-week supply also is unpredictable across gateways, primarily due to a lack of demand.
“Last year it was largely driven by congestion and vessels being misaligned,” said Kyle Beaulieu, director, ocean strategy and carrier development at Flexport.
However, with the drop in demand, combined with the passing of China’s Lunar New Year holiday, Beaulieu said ocean carriers have “major voids” for February. Effective capacity in the fifth week of 2023 hit the lowest level in three years at fewer than 200,000 TEUs.
“Overall deployment for February might actually hit less than 50 percent on average by the time the month wraps up,” he said.
Currently, every major gateway into the U.S. is at or below 60 percent capacity. In the Pacific Southwest, TEU deployment is at its lowest at 55 percent, while it is 60 percent in the Pacific Northwest. Across the East Coast and the Gulf Coast, deployment reached 57 percent capacity.
This will result in more blank sailings before the month is out, especially since the capacity numbers traditionally drop anywhere between 5 percent and 10 percent over the course of the month, according to Beaulieu.
The decline in demand has resulted from carriers remaining over-inventoried. Carriers currently face the challenge of balancing out when the inventory will return, and how they should appropriately manage their capacity for that.
Additionally, carriers are still trying to regain a sense of schedule reliability, and as such are deliberately “slow steaming” the speed of cargo ships. For carrier clients, this means that shipping times will be slower than pre-Covid. But Beaulieu emphasized that these times will still be an improvement over the peak pandemic years.
However, Beaulieu noted that he expects freight rates to increase again in the second half of 2023 after they cooled off last year.
“Rates are far below where people would have expected three months ago, and definitely six months ago,” Beaulieu said. “They’re at a place where they’re not healthy overall for ocean carriers from a profitability standpoint, so this is a challenge for them. In many places we’ve started to hit the floor. We’ve seen in the past that carriers can go below the floor or the market if it’s just not there.”
Freight services consolidate, but ramp up in Southeast Asia
One upside to the drop in demand and an increase in blank sailings is that this gives carriers time to reposition their vessels, with new carrier service rotations generally starting in March and April.
Beaulieu highlighted two common trends across the major shipping alliances that have announced new service rotations for 2023.
The first trend is a consolidation of service strings—coming in the form of either outright service cancellations or fewer port calls—which ease congestion at major ports.
The second trend is an increase in service offerings for Southeast Asia, particularly Vietnam and the Indian subcontinent.
India benefits from added capacity as carriers seek higher rates
While the major shipping carriers still have not confirmed vessel deployment across strings and carriers for 2023, Beaulieu noted that the two top trends have led to carriers chasing higher shipping rates and shoring up their position on smaller trade routes.
Container fleet deployment on the Trans-Pacific East Bound (TPEB) route, which represents trade from East and Southeast Asia to North America, dropped 6 percent on a year-over-year basis to Feb. 1, 2023. Similarly, deployment on the Far East Westbound (FEWB) trade route from Asia to Europe decreased 4 percent.
With the new services across the Indian subcontinent, total TEU across ports in the region and the Middle East increased 11 percent.
“This is in part because they’re taking on more of the 13,000 to 15,000 TEU ships that have come from the larger East-West trades,” Beaulieu said. “There’s likely to be more of a volume shift as carriers add strings in this region.”
Latin America is also seeing a rebound after losing vessels to East-West trades during the Covid-19 pandemic, with total TEU deployment at the region’s ports increasing 5 percent.