The occurrence of a peak container shipping season on the transpacific happens annually, but the exact timing of the event is harder to gauge.
External variables have a major effect on when shippers decide to reload on inventory ahead of the holiday season.
And 2012 is no different in that regard. Shippers should brace for some type of peak this year, while also bracing for a variety of potential hiccups, like labor negotiations on both coasts, high fuel prices, and a presidential election.
That was the consensus from a panel gathered last week for American Shipper’s Peak Season Preview webinar
History shows that U.S. inbound container volumes spike between 22 to 24 percent in the third quarter compared to the first quarter of every year since 2006, said Mathijs Slangen, maritime advisor for the consultancy Seabury. The only exception was a 44 percent spike in 2010.
But Slangen was quick to point out that “demand is not the key issue on (the transpacific) trade. We all know profitability and capacity are the key factors.”
Seabury is forecasting inbound North American volume to grow 4.8 percent in 2012, including a more muted 4.2 percent growth during the third quarter. Slangen called the growth moderate and said the industry must adjust to the current phase of slower growth in container shipping.
“The next stage of the product lifecycle has arrived (in containerized trade),” he said. “We’ve gone from accelerated growth to a more mature stage. But double digit growth figures is not something we expect to happen in the next four or five years. Specifically not higher than 8 or 9 percent.”
Slangen said Seabury expects two tough years in 2012 and 2013, with a more positive long-term outlook.
“But we should not expect to return to the double-digit growth of years past,” he said.
Other panelists detailed the laundry list of potential speed bumps during peak season this year.
“It’s going to be an emotional summer,” said Ed Sands, global logistics practice leader for Procurian. “You will have a political environment that will be at a fever pitch. You’ve got labor uncertainty – a great deal of it. GDP growth and consumer confidence remain weak, so we’ve got to think about what the impact is going to be on carriers’ bottom lines and volumes in the industry as we head into the peak this summer.”
Sands emphasized the impact of the presidential election may be more psychological than tangible.
“It’s a big stretch to suggest that the election could influence peak season, but you have to understand the emotions of the marketplace,” he said. “Don’t ignore the context of this. It’ll make you more prepared for the internal questions you may get from your leadership.”
Plus, there are plenty of other issues to keep shippers up at night as peak season approaches.
“Is the traditional peak, due to the labor issue, going to be early and sharp?” Sands said. “Are the carriers going to see a strong June and July, with a quick fall off as importers shift inventory and orders from factories earlier in the season? Or are we going to see a traditional spike, or none at all?”
has heard from multiple carriers in recent weeks that April and May were more robust than normal, indicating that shippers either felt they needed to replenish inventory levels, or were concerned about a labor action on the U.S. East Coast, or both.
The panelists said the looming threat of a strike by East Coast longshoremen should have shippers preparing for the worst and hoping for the best.
“We haven’t seen a labor strike in 37 years on the East Coast,” said Jon Gold, vice president of supply chain and customs policy for the National Retail Federation. “We want to make sure that continues, but you need to be prepared for the worst case scenario. You have to look at all of your options. Talk to your carriers and get constant updates. Make sure you’re working with your service providers to understand what’s available.”
Sands said the reality is that if there's a disruption at East Coast ports, it will be about damage limitation rather than avoidance. He said it’s problematic to shift complex supply chain functions like transloading on a scale necessary to completely overcome a disruption.
“The reality is if one coast shuts down, it’s not like you’ll be flying through the other coast,” he said. “You just need to assume there’s risk associated with it, and service is going to suffer one way or the other, and you’ve just got to do your best to weather it.”
Sands, who has worked on both the carrier and shipper sides of the table, laid out a list of recommendations for shippers to follow to minimize risk, adding that shippers need to understand their business and how much risk they can tolerate.
He said shippers need to decide whether they will commit heavily to contracted rates, either direct with carriers or through non-vessel-operating common carriers, or whether they will rely more on spot rates.
Procurian, in general, advises clients to commit 70 percent of base volume direct with carriers, while agreeing on reciprocal penalty clauses for failing to meet minimum quantity commitments or for carriers not providing contracted capacity.
Sands said the percentage will differ depending on the shipper, with some being better served relying on a blend of NVO and direct carrier commitments, or even pure NVO contracts. Penalty clauses are typically not required when going through an NVO, as the clauses are between the NVO and carrier, with “the shipper simply leveraging that,” Sands said.
Meanwhile, Gold said retailers are hopeful there won’t be a repeat of late 2009/early 2010, “with carriers taking capacity out and driving the rates up. Hopefully everybody has learned from that time what not to do. I know our members are working closely with their carriers to make sure they’re giving them forecasts on what to expect and what they need, and hopefully everybody else is doing that as well.”
Sands also said shippers need to at least try to provide accurate forecasts “or a sea of uncertainty awaits you.” - Eric Johnson