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Flexport Ocean Execs See Some Bright Spots in Container Shipping

The tides may finally be turning in ocean shipping.

Falling spot rates and consumer demand, alongside increased capacity, are combining to create a new environment of tailwinds for shippers, according to executives from digital freight forwarder Flexport. However, a glut of inventory that’s now weighing down some retailers is also contributing to already existing congestion on the rail and trucking side of the supply chain that’s making it difficult to gain visibility on when broader logistics issues will ultimately dissipate.

The sky-high container spot rates marking the past couple years have come down, amid increased capacity on ships as consumer demand has slowed.

That’s caused a number of big-box retailers to report excess inventory as some, such as Target and Walmart, look to right-size their merchandise levels.

“When talking to most clients, in the past couple of weeks, we have seen inventory overstock as one of the big driving factors in their shipping frequency,” Nathan Strang, Flexport director of North America ocean, said during a Flexport webinar on the ocean market Tuesday.

A Flexport analysis of major U.S. retailers studied their inventory levels between the first quarter of 2022 and the year-ago period.

Amazon’s inventory jumped 47 percent during the time period, while sales increased 8 percent. Target saw inventory increase 43 percent, while sales rose 4 percent. Walmart’s inventory increased 32 percent, with sales up 4 percent.

Amazon, Target, Walmart, Costco, Lowe’s and Best Buy account for 23 percent of the U.S. retail market. Those six chains cutting orders by 25 percent would add about 5 percent of import capacity, according to Flexport’s data.

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Strang went on to say distribution points are seeing overstock, even if the final client may not have excess inventory, indicating a trickle-over effect across the supply chain that also inevitably impacts retailer projections.

A similar trend is being seen in Europe, according to Flexport head of ocean for EMEA Florian Braun.

“Especially turnaround times between ports, customer facility and back has increased a lot,” Braun said during the webinar. “And that is related to the full warehouses not being able to turn basically containers as fast as customers are used to.”

The excess inventory is partially due to retailers looking to hedge against congestion and potential slowdowns at West Coast ports due to the labor negotiations, Strang said. That safety stock, he added, anticipated consumer spending habits would remain unchanged.

The moving market has led to many of the premium services particularly for the Trans-Pacific trade route, being offered over the past couple years to recede in a move that’s also caused rates to fall. Premium services such as expedited rail, charters, specialty equipment or priority discharge are now being pulled back due to price sensitivities and the overstock that’s making timing not as critical an issue.

Additionally, blank or skipped sailings are also now falling as a result of the changing market conditions.

“I think one of the big things that was driving blanks over the past few years was congestion on the West Coast when we saw the vessel backlog at Los Angeles and Oakland, [Portland] and [Washington] and Vancouver. Those vessels sitting for two weeks, it’s obviously going to cause service disruptions and blank sailings,” Strang said. “And similar, too, the East Coast when you see issues at Savannah and New York right now. However, as service improves, you are seeing these blanks start to decrease. This is a good thing.”

Vessel capacity is increasing, particularly on the West Coast. Strang said in 2020 and 2021, the West Coast saw around 7,000 twenty-foot equivalent (TEU) container ships. The industry is now seeing 10,000 TEU vessels, resulting in greater efficiencies and less congestion.

“Overall, this should be a good thing for when we look at service reliability going forward for this year,” Strang said.

A similar trend in skipped sailings is also being seen in the European market, Braun pointed out.

“We saw a spike in blank sailings, of course, during the COVID time,” Braun said of the European operating environment. “However, now if you look into 2022, we have still quite a few blank sailings to challenge the year and also due to the Shanghai lockdown. But, right now, for July, there’s very few blank sailing announcements. On average one to three maximum sailings are blank. However, depending on the situation, that can change really, really quickly.”

Even with some indication of bright spots within the ocean market, there are other challenges within the transportation space.

Rail would be one of those for the North American market, Strang said. Congestion in places such as Chicago and Dallas, are creating challenges even with cargo levels declining as trains loaded with merchandise sit at rail terminals because the retailers can’t take on the deliveries.

Rail terminals aren’t meant for long-term storage, creating a back-up of trains loaded with containers that can’t go anywhere.

That’s just one example of other wrinkles now cropping up within the supply chain, making it difficult for shippers and carriers to catch a collective breath.

“So, we’re going to see all these compounded issues persist,” Strang said, “and they’re going to have to be slowly chipped away through efforts of clients and forwarders and carriers to clear these situations out.”