U.S. exports sail longer

As a U.S. exporter in today’s market, one is forced to account for significantly slower transit times than importers.

   Ocean liner carriers have long struggled with overcapacity. In the most basic economic terms, the number of available container slots for sale in any given trade lane represents supply, while shipper utilization represents demand. When supply exceeds demand, prices go down and when demand exceeds supply, prices bounce upward. The former, while appealing to shippers, could spell disaster for carriers, as many complain rates are already too low in the major east-west trades to maintain profitability. The latter capacity scenario would appeal to carriers, but leaves potential revenue on the table if they’re unable to their customers’ needs.
   In 2009, the industry saw a shift in how liner capacity is managed, especially in the major east-west trade lanes. Using slow steaming, the practice of adding a vessel to a service and extending transit times between certain ports to increase total voyage time by a week, and skipped sailings, meaning a vessel does not sail on its intended route, carriers could manage their capacity more closely.
   While in the past carriers either added or removed entire services from a trade, they could now adjust capacity incrementally via slow steaming and skipped sailings. In doing so, carriers are able to better manage supply in the market, and therefore, pricing for their services in what’s become an increasingly competitive market with diminishing profits.
   Both practices have an effect on shippers in terms of pricing and availability of capacity, but slow steaming specifically impacts transit times and the ability of shippers to manage their supply chains effectively. Since it became common practice in 2009, slow steaming has had a much greater impact on transit times for U.S. exporters than importers because carriers have been more willing to add those extra days to the outbound leg of the affected services.

Source: BlueWater Reporting’s Historical Transit Time report.

   The corresponding chart, which uses data from BlueWater Reporting’s Historical Transit Time report, compares the average inbound and outbound transit times between Shanghai and Los Angeles, and New York and Rotterdam, the busiest ports in Asia, North America, and North Europe, respectively, on a quarterly basis since 2009. In early 2009, these transit times were relatively close. Average import transit time on services with direct connections from Shanghai to Los Angeles was 14.57 days, just 3.74 days faster than average export time of 18.31 days, by far the smallest disparity within the five-year period examined. Between Rotterdam and New York, average inbound transit time clocked in at 10.71 days, while average outbound transit was an even 13 days, only 2.29 days slower than its inbound counterpart. In the second quarter of 2009, that difference was smaller, dropping to 1.69 days, with average inbound times increasing to 11.14 days and outbound decreasing to 12.83 days.
   As slow steaming became more common, however, outbound transit times began to steadily increase, while inbound transits remained relatively stable. This trend of adding extra days to the return leg of transpacific and transatlantic services has caused disparity between export and import transit times between Shanghai and Los Angeles, reaching its peak in the fourth quarter of 2013 when average transit time from Los Angeles to Shanghai hit 25.07 days, 8.77 days slower than the 16.3-day average time from Shanghai to Los Angeles. Between Rotterdam and New York, this disparity reached its high point in the third quarter of 2010, when outbound transit times averaged 5.3 days slower than inbound times at 16.8 days and 11.5 days, respectively.
   The flip side to all this is that U.S. export shippers generally enjoy much lower rates than importers, though that can be partly attributed to lower demand levels. The fact is that as a U.S. exporter in today’s market, one is forced to account for significantly slower transit times. With carriers introducing ever-larger vessels and consolidating services, capacity management has become much more complicated, and that’s unlikely to change any time soon.
   Meyer is a research analyst with BlueWater Reporting. He can be reached by email here.

This column was published in the December 2014 issue of American Shipper.