Hopeful signs, yet uncertainties abound in 3rd-quarter shipping

Compiled by Bruce Abbe, strategic adviser for trade and transportation

There are some hopeful signs emerging that the third quarter of 2020 could see the start of a turn-around for container shipping volumes off the U.S. West Coast after a dreadful first half of the year that saw unprecedented declines at the ports.

Yet those positive signs are mired in uncertainty over fears that the U.S. and other parts of the world could see a second wave of a pandemic-driven economic setback, as well as a resurgence of trade wars leading up to the election.

Freightwaves reported last week that blank sailings (cancelled previously scheduled container ship services) projected for the third quarter are down from the brutal first and second quarters, citing Denmark-based eeSea consulting firm. While blank sailings made up for 14% of total planned sailings in the second quarter (105 for April-June), they’ve represented only 3% so far for the third quarter, eeSea reported, saying only 26 had been announced for the third quarter on the West Coast.

Those totals contrast with recent announcements from two of the three major alliances (The Alliance and 2M) of 75 blank sailings for the third quarter globally. The Ocean Alliance has not yet announced its plans for the third quarter.

One additional sign of container shipping volumes turning around (though one not favored by shippers) is the strength of the spot shipping rates on the Trans-Pacific. Rates reportedly are at a 2 ½-year high.  Ocean carriers put through two general rate increases (GRIs) in June. Reduced capacity due to blank sailings are the key factor in higher rates, along with some return of import and export demand.

American Shipper also documented how blank sailings have sent shipping rates on a steep climb of late.

May volumes down sharply
May figures are in, however, and the numbers were abysmal for the West Coast ports for the first part of the year.

The Northwest Seaport Alliance ports of Seattle and Tacoma reported a drop of overall container volumes of 18.8% for the first five months of 2020, compared to 2019 – 1,277,227 TEUs (20-foot equivalents), the lowest since 2009 – thanks to 46 cancelled sailings. The carriers have announced 17 more blank sailings. While some ag exports remain strong from NWSA, a major contributor to the decline is reduced demand for potatoes shipped from Idaho and eastern Washington to serve food service industries overseas.

Southern California’s Los Angeles/Long Beach big port complex reported container volumes down nearly 14% for the first five months. The Port of LA’s numbers were down 19%, due, in part, to some shifting of service around San Pedro Bay to Long Beach terminals. Together the ports handled 5,901,270 TEUs, down from 6,782,331 over the same period last year.

Port of LA Executive Director Gene Seroka said he’s worried there could even be a permanent loss of import volumes to the tune of 15%, citing the effects of the trade war as well as less consumer spending and less U.S. manufacturing due to the pandemic. Canceled sailings delivered a blow to the port, according to Seroka, Freightwaves reported.  However, he added that canceled sailings estimates have begun to ease at the port for June and looking ahead.

Both Seroka and NWSA Executive Director John Wolfe have expressed concerns about the lingering effect of the trade war on container volumes at the West Coast gateways in comments during recent stakeholder virtual meetings.

The Port of Oakland reported in a June 11 news release that loaded container volumes were down 12.7% in May, with imports down 14.6% and exports down 10.7%, in line with expectations.

Second wave worries
While projections for blank sailings in the third quarter – normally the peak container shipping season as U.S. retail importers stock up for the fall and upcoming holidays – now appear to be improving as the economy opens up, there are also worries about the potential impact of a second wave of COVID 19 on the global economy and ocean shipping if personal protection measures fail to keep the virus in check.

According to news reports, global virus infections remain near all-time highs, and the chief economist of the global Organization for Economic Co-operation and Development (OECD), Laurence Boone, warned a second wave of the virus would produce a “double hit” to the economy, raising forecasts of a drop in GDP from 6% to 7.6% for the year. The OECD forecast for the U.S. was a GDP plunge of 7.3% for a single hit of the virus business impact to 8.5% with a second wave hit.