US OCEAN FREIGHT IMPORT GROWTH SET TO CONTINUE THROUGHOUT 2021

With inventory levels currently exceptionally low, box import growth above 2019 levels will continue this year ‘simply in order to rebuild inventories’, as long as retail sales do not collapse, according to analysis by Sea-Intelligence

In its latest Sunday Spotlight update, Sea-Intelligence analysed the developments in sales and inventories in the US using the latest data released by the US Census Bureau. It said this was “of particular interest as the transpacific container demand is booming and as the container volumes are driven by both growth in sales, as well as inventory restocking”.

With US inventory levels currently exceptionally low, Alan Murphy, CEO of Sea-Intelligence, said that “if retail sales in the US revert back to the normal trend growth in 2021 – i.e. they do not “collapse”, they simply go back to normal – then we will see import growth for the entirety of 2021 remain elevated compared to 2019, simply in order to rebuild inventories.”

Demand boom

Explaining his organisation’s analysis, Murphy noted: “We have never, in the 28 years of data, seen the relative inventory level for retailers be as low as they are now, and despite 6 months of demand boom, there is still quite a distance up to past low points of inventories. This of course begs the question: when will the inventories be rebuilt? This is important, as it has an impact on the container boom itself.

“One question underlying this is how long the current boom sales will last. For now, that is a question without a good solid answer, simply because the sales development is entirely contingent on the 2021 pandemic developments, and how this impacts consumer sentiment.”

Murphy added: “We built a model to calculate the continued boost from inventory rebuilding, and how this might impact US import volumes. One possible scenario is wherein the retailers continue to build their inventories, until they reach the same inventory-to-sales ratio they had prior to the pandemic, and then maintain this level. From this perspective, we will see a scenario where sales will continue the trend seen in the past 10 years, and we see an inventory management approach where stocks are kept at levels the retailers were happy with, prior to the pandemic.”

Container growth

In terms of what this implies for container growth, he noted: “Overall, what this means is that a normal development in sales in the US, could – through inventory replenishment – sustain a strong US import container growth through all of 2021. By early 2022, we might then see year-on-year growth temporarily approach zero, but this is a short-term phenomenon, associated with the excess inventory build-up seen in 2021.”

As Lloyd’s Loading List reported last week, analysts at Maritime Strategies International (MSI) believe that “with carrier booking volumes reportedly still strong, several months of further port congestion to contend with, and uncertainty over the scale of pent-up demand post Lunar New Year, nothing is yet set in stone and strong freight and time charter markets by historical standards are expected to endure at least into H2 21”.

MSI’s Time Charter Rate Index has now reached its highest level since 2007 as demand for vessels continues to outstrip supply. The upshot is that only around 1% of the global fleet is currently idle and many of these vessels are undergoing repairs.

'Colossal' volume

According to the analyst, US demand for goods from the Far East continues to be the root cause of wider market dislocations and shortages of equipment and vessels. “Asia-US volumes reached over 5 million TEU in Q4 20, the highest level on record,” it said.

“This colossal volume of goods has been imported into ports that are generally less productive than major European or Chinese counterparts, and over distances that favour the use of midsize vessels for which there is a liquid time charter market.”

While a comparable surge on the Asia-Europe trade would have led to similar outcomes in terms of equipment shortages and mid-size vessel demand, MSI concluded that “the US that has led the wider market, and the pace at which trans-Pacific volumes cool and port congestion is reduced will do most to determine the timing of a market correction”.

It added: “Looking ahead, we expect the US demand surge to continue into Q2 21 due to back-orders accumulated over Lunar New Year, as well as a fresh round of US stimulus payments. Since port executives at the key US terminals expect ongoing congestion some way into Q2 21, we believe the trans-Pacific market will absorb an abnormal volume of tonnage for the next 3-4 months at least.”

But the analyst’s latest container report says there are indications that spot freight rates will start to ease in the coming months from their current record high levels, noting: “We anticipate a correction in freight rates in Q2, although the timing here remains uncertain, and this does not portend immediate relief from the chaos in the market – cargo backlogs and port congestion promise further months of schedule delays and costly surcharges for shippers.”

Source :www.lloydsloadinglist.com ( written by Will Waters )