US Import Growth & Price Implications

2018 is off to a great start!  With Peak Season just around the bend, the U.S. import volume has grown 6.5% for the first half of 2018, up from 3.5% growth at the same time last year.  U.S. GDP has grown, retail sales are supported by e-commerce channels, manufacturing was stable and the economy overall has been healthy.  A recent poll of importers provided insight that 61% expected 2018 Peak Season to be stronger than 2017.

Considering the above factors, it would seem that August, September and October will be great months for the steamship lines who will undoubtedly deploy repeated General Rate Increases on the 1st and 15th each month attempting to drive margins up while capacity is limited.  The only thwarting factor may be the looming tariff exposure for many of the imported goods sourced from Asia.  The market has seen a rush in imports in June and July as importers try to get ahead of tariff increases stocking as much surplus as possible.

Meanwhile on the carrier front, alliances have pulled some services and capacity from the US TPEB market.  2M removed a west coast loop weeks ago, combining it with another existing service when fill factor had dropped to 85%.  Ocean Alliance announced plans to has announced plans to cut capacity on some key services.  THE Alliance announced reductions to be effective August 6. Zim is in the process of reducing services behind the huge announcement of a deal with 2M that will result in a 5.2% reduction of their US East Coast capacity effective in September.  If volumes continue to surge while capacity is being removed from the market, we will see a perfect storm for demand and prices will increase quickly.  Vessel utilization has been north of 95% for three weeks now and will continue to climb.  Carriers have filed for General Rate Increases on August 1 and August 15.  Initial filings for 8/1 indicate increases of approximately $500/FEU for US west coast and $700/FEU for US east coast.  In the first half of July, East Coast rates increased 20.3% while West Coast rates increased 30.2% based on the SCFI.

As unfortunate as it may be for importers who ultimately bear the burden of Peak Seasons and General Rate Increases, steamship lines have been in dire financial position for some time and their financials are widely considered to be “poor” based on Drewry’s ‘Z Score’ of financial strength. A short period of financial health for steamship lines may be the best solution to offer continued market stability for all parties involved.