The early start to 2023’s Chinese New Year and its extended factory shutdowns could deepen the transpacific container cargo market downturn that began in 2022’s second half.
Container traffic on the China to West Coast North America route had already dropped significantly late last year as recession fears and inflation spikes hit consumer finances hard.
According to a November report from John McCown, a New York-based container shipping industry analyst, the 10 largest ports in the United States recorded a 17.5 per cent decrease in inbound container volume compared with the same month in 2021. West Coast ports led that decline with a 26 per cent drop, which McCown estimated was “the biggest decline ever for the West Coast.”
Traffic to Canada’s West Coast ports was also down.
The factors contributing to that decline range far and wide. Inflation is a top contender, but there is also ongoing uncertainty over potential supply chain labour disruptions in the United States and 2022’s inventory glut resulting from pandemic-induced supply chain dysfunction.
The timing of 2023’s Chinese New Year further complicates transpacific trade.
Coinciding with the lunar calendar and the arrival of the new moon, it falls on different dates between January 21 and February 21 each year.
This year it is January 22; last year it was February 1.
The new year’s early arrival could extend annual celebrations and factory shutdowns in China, where the Chinese Communist Party’s (CCP) rigid zero-COVID policy had already disrupted factory production and global cargo flow before the CCP’s hardline pandemic strategy was loosened late last year. An earlier start to the new year break means an earlier shutdown of factories, which typically close for between two and four weeks. A rapid rise in COVID-19 cases in China could further delay the reopening of factories and stall their return to full production.
So, how will a Lunar New Year break that will extend from Jan. 22 until Feb. 6 complicate transpacific supply chain operations?
“There are added and new complexities ahead coupled with Chinese New Year, where at one end we see China coping with the COVID infections, and on the other end we see a continued dip in demand," said Christian Roeloffs, cofounder and CEO, Container xChange, an online container logistics platform based in Germany. "We cannot see Chinese New Year in isolation but in combination with all these challenges. The biggest concern is the reduced production and port capacity due to the infections in China. Also, the rates are low, capacity management is still top priority for carriers and blank sailings are prominent. Amidst this, in the coming weeks, we do foresee prolonged factory closures and bearish market conditions.”
In a Container x-Change survey of 2,300 global supply chain professionals conducted in the leadup to the Chinese New Year, 73 per cent of respondents said they expect further shipping disruption resulting from this year's event compared with 66 per cent last year.
“There are so many question marks, so many unknowns,” said Cathy Roberson, the president and founder of Logistics Trends & Insights LLC. “It is going to be hard for a lot of businesses to gauge how to replenish their inventories post-Chinese New Year.”
Those question marks and unknowns revolve around uncertainty over North American demand, which was destabilized when the pandemic abruptly pulled the plug on global trade in 2020 and a subsequent and unexpected consumer spending spree on products overwhelmed shipping capacity in 2021.
The resulting cargo movement dysfunction has only recently begun to ease along the West Coast.
2021’s empty store shelves have been replaced with 2022’s overstocked retailer inventories.
Speaking on a Jan. 12 Container x-Change panel discussing the impact of an earlier Chinese New Year, Roberson pointed out that ocean and air freight rates traditionally have jumped significantly in the lead-up to Chinese New Year.
But this year, she said, “It’s been crickets. I mean, you haven’t seen any changes.”
Roberson added that retailers are struggling to rebalance their inventories in the face of unprecedented economic volatility.
“So, you know, like I said, it’s a lot of unknowns.”
She added that there is also uncertainty over when full-on manufacturing will return in Asia after the Chinese New Year break.
“Yeah, it will open up on February 6. For most manufacturers, however, how many people are going to be able to crank out orders? And then the other question, again, is how much inventory replenishment is really needed here in the U.S. market? And, right now, looking at government statistics, inventory levels still remain high, and we’re also seeing sales plateauing, if not dipping.”
There are fewer unknowns and less uncertainty surrounding projected growth in maritime trade.
It has and will continue to slow down.
In its 2022 Review of Maritime Transport, the United Nations Conference on Trade and Development (UNCTAD) projected growth to slow to 1.4 per cent in 2022 and to increase 2.1 per cent annually between 2023 and 2027. That is much slower than the previous three-decade average of 3.3 per cent.
UNCTAD noted that growth in containerized cargo, which for years has been maritime trade’s fastest growing segment, “is projected to be a tepid 1.2 per cent [in 2022] before marginally picking up to 1.9 per cent in 2023.”
The combination of lower demand coupled with increased capacity from reduced supply chain congestion and a huge increase in fleet expansion has driven down container shipping costs dramatically.
Container x-Change noted that the spot rate for a 40-foot container on the China to West Coast North America trade route had dropped 20 per cent to US$2,361 in October. A year ago, that rate was US$20,000.
An estimated 2.3 million 20-foot-equivalent units (TEUs) of new shipping capacity are expected to be added to the global market’s 24.6 million TEUs in 2023.
Drewry, a U.K.-based shipping consultancy, noted that while capacity reductions instituted by ocean carrier companies will keep overall fleet growth to a manageable 1.9 per cent “the easing of supply chain congestion will increase effective capacity at a much greater rate [19 per cent] – returning the market to an oversupplied position.”
Meanwhile, the early Chinese New Year has taken its toll on global air cargo demand, according to WorldACD Market Data.
The Netherlands-based company noted in a Jan. 26 report that worldwide air cargo tonnages were down three per cent compared with the previous week. The same week in 2022 showed global air cargo tonnages up three per cent.
Overall, the global air cargo market was down 22 per cent in the second and third weeks of January compared with the same period in 2022, according to WorldACD numbers.