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What’s driving peak season and will it brake?

There appears to be no ceiling in sight for ocean freight rates on the eastbound transpacific. Last week, the Shanghai Containerized Freight Index notched a spot rate average of nearly triple what it was when rates bottomed out in March from Asia to the West Coast, as China slowly recovered from COVID and Europe and America were thrust into the throes of closures and coping with the impact of the virus.


There were three core drivers of this boom cycle which has seen record volumes at the Southern California ports of Los Angeles and Long Beach as importers look to get their goods into the hands of US buyers as quickly as possible, foregoing all-water services and lacking air freight capacity to make up the difference.


Record-low inventory levels

Post-Christmas, pre-spring ramp-up and the prolonged closures of factories in China came together to create shortages that ground some industries to a halt for lack of key inputs. Whether raw materials for steel furnaces or thread or fabric to produce desperately needed PPE, the time it took to ramp up raw material production and the changes in work necessitated by social distancing and ensuring a healthy workforce created empty spaces on shelves and in e-Commerce fulfillment warehouses.


Discretionary dollars shifting from entertainment to home goods

With restaurants closed, food prices ticking upwards by double-digits and leisure and business travel at a standstill, US consumers shifted their buying habits to the online environment and retailers had to ramp up both curbside pickup capabilities as well as direct warehouse fulfillment.

Nowhere to go but home, consumers also turned to home improvements and doing things in the spaces they live, delivering a whopping 51% increase in appliance exports from South Korea in August compared to year-on-year numbers in the process.


Blanked sailings and restricted capacity

Alliances have famously have blanked sailings and reduced the space available to preserve rates that have remained high even as the China fall holidays arrive later this week. However, bowing perhaps to pressure from China and the US Federal Maritime Commission, space is becoming available as Maersk and the other alliances have revoked their planned blank sailings and will return capacity to the market in October.


What does this mean for shippers?

At this juncture, it is too early to tell. The fall consumer goods electronics refresh season is upon us. The forecasted demand for air cargo to deliver vaccines worldwide will add another element to the calculus for shippers weighing air vs. sea freight to get their goods to market. Finally, we have a US election in a little over a month and an as-yet determined outcome of what Brexit means for the EU and the UK on January 1st.

All this is to say that there’s a lot to watch, and your partners here at RIM are monitoring it all across our offices in Asia, Europe and North America to continuously work to protect space, charter aircraft as needed and ensure that our customers’ supply chains remain fluid and in motion into 2020’s Q4 and 2021 and beyond.