Ocean market – adding capacity doesn’t mean overcapacity

One overarching observation is that ocean carriers’ business models have improved in recent years. The carriers’ ability to coordinate blank sailings through alliances has enabled carriers to mitigate the risk of overcapacity from a robust order book for new vessels. Carriers can fine-tune capacity levels via slow steaming as well. McCown also points out that the volume of container ships set to come online (15% over a multiyear period) is only about half of the TEU capacity (30%), which gains most of the headlines. Container ships are also pulling cargo from other vessel types in agriculture. Taken together, while Maersk last week said spot rates have likely peaked, contract rates, which are more important in the container shipping industry, are nevertheless likely to remain elevated. Longer routings away from the Red Sea continue to remove about 8% of capacity from the industry, and volume in the key Asia-to-North America lanes continues to set records.

Watch Monday’s show here or click here to get caught up on all past The Stockout episodes. 

For more from John D. McCown, you can sign up for his monthly ocean newsletter by sending an email to john.d.mccown@gmail.com.

Here are links to several recent FreightWaves articles on ocean shipping: 

• Overcapacity remains key challenge, Trimble-Transporeon report finds
• China port explosion snarls trans-Pacific container trade
• Early peak drives record LA port volume
• Peak season came early this year – what to do if you missed it

Maersk’s management said it believes that ocean spot rates have peaked, but rates remain at elevated levels. Ocean spot rates from China to the North American west coast and east coast are shown in white and red, respectively. (Chart: SONAR)

Canadian rail strike may begin as early as Aug. 22

Intermodal volume originating at Prince Rupert, British Columbia, is tracking below recent years (white line is 2024) due to vessel diversions to avoid potential labor disruptions. (Chart: SONAR)

On Aug. 9, the Canadian Industrial Relations Board (CIRB) determined that a work stoppage at the Canadian railways would cause no “serious danger.” At the same time, the CIRB ordered a 13-day cooling-off period that started that day. The dispute involves close to 10,000 workers represented by the Teamsters Canada Rail Conference (TCRC) that work at both Canadian National Railway (CN) and Canadian Pacific Kansas City (CPKC), and the ruling gives negotiating leverage to the union. CN has called on the labor minister to issue binding arbitration. The railway also issued a notice that it plans to begin a phased network shutdown on Aug, 22 if there is no meaningful progress in either negotiations or binding arbitration.

For more, see FreightWaves article. 

Macro data points highlight moderating inflation, stressed consumer:

Recent macro data points relevant for CPG and retailers include:

• The Consumer Price Index in July showed price levels rising 2.9%, the smallest increase since March 2021 and slightly below the consensus forecast of 3%.
• Tuesday’s release of the Producer Price Index saw the headline index for July increase just 0.1% month over month (versus 0.2% consensus) and increase 2.2% year over year. The inflation in producers’ costs was mainly driven by energy (+1.9% m/m) on a 2.8% and 12.9% rise in gasoline and diesel, respectively.
• Credit card balances of $1.14 trillion are 5.8% higher year over year. 10.9% of credit card balances are 90-plus days delinquent.
• A survey by Datassential found that 60% of consumers say they have changed how they shop due to higher grocery prices.
• Walmart raised its guidance for FY25 sales by 75 basis points, from 3%-4% to 3.75%-4.75%. It cited continued share gains across income levels, led by upper-income households.