TP Pulse: East Coast port strike potential worries shippers

   There’s a growing unease among eastbound transpacific shippers that simmering tensions between U.S. East Coast longshoremen and their employers could affect their supply chains.
   Unionized dockworkers are in contentious negotiations with the representative organization for East Coast terminal operators and carriers as they try to hammer out a new contract before the current one expires in September.
   According to the latest Transpacific Pulse survey, conducted by American Shipper in late May, shippers are more concerned about the impacts of a possible strike action by the International Longshoremen’s Association than they were when last surveyed in March.
   The survey gathered opinions from 100 shippers and 19 carriers, polled May 21-30, and found that 55 percent of respondents said they’d route cargo to U.S. Wast Coast ports to avoid the effects of a possible strike, versus only 38 percent in March.
   Another 18 percent indicated they would ship cargo through east coast Canadian ports (which would be unaffected by an ILA strike), compared to 11 percent in March.
   Most significantly, the percentage of respondents who said they aren’t worried about a strike and wouldn’t make major changes to their supply chains has dropped from 42 percent in March to 23 percent in May.
   In short, the longer the stalemate between the ILA and their employers has dragged along, the more worried shippers have become.
   While transpacific shippers are concerned about the labor dispute at U.S. East Coast ports, they are much less worried about carriers shelving capacity in the coming months as they were in March. Sixty-three percent said they expected carriers to idle capacity in March, but that dropped to 34 percent in May, perhaps a reflection on the upcoming peak season when carriers typically operate with as little idled capacity as possible.
   The preponderance (more than 80 percent) of shipper respondents said they see the present capacity situation as either tight or balanced, with nearly 14 percent calling capacity soft and less than five percent considering it either very tight or very soft.
   The larger the shipper, the more likely the company is to see capacity as tight, as has been the case with previous TP Pulse results. Seventy percent of respondents that ship more than 10,000 TEUs annually saw capacity as tight or very tight, compared to 35 percent of those that ship less than 2,000 TEUs annually.
   Retailers and 3PLs make up nearly 80 percent of respondents who see capacity as tight, compared to less than 20 percent of manufacturers, the majority of whom see capacity as balanced or soft. Retailers on the whole are more concerned about capacity in May than there were in March. Two-thirds of retailer respondents said in March that capacity was in balance or soft, but that dropped to 48 percent in May. Now more than 51 percent of retailers see capacity as tight.
   Carriers will be encouraged that nearly two-thirds of respondents said their rates either increased or remained the same in the last month. Of that, 26 percent said their rates rose significantly.
   Bigger shippers also were hit harder by rate increases, with 57 percent of shippers who move more than 25,000 TEUs on the transpacific eastbound saying their rates increased significantly, compared to 18 percent of shippers moving less than 2,000 TEUs. Interestingly, zero large shippers (25,000 TEUs or more annually) said their rates increased modestly – their rates either went up sizably, or didn’t go up at all.
   Among shipper categories, 3PLs were hit hardest by the rate hikes, with nearly 49 percent saying their rates rose significantly, compared to 11 percent of manufacturers and 10 percent of retailers.
   With capacity tightening, shippers also reported an increase in the number of rolls occurring in Asia. In March, 64 percent said they hadn’t had any cargo rolled recently, with another 31 percent saying it happened, but infrequently. In May, only 52 percent said they hadn’t had any cargo rolled recently, with 13 percent saying it was happening at an increasing rate (compared to 5 percent in March).
   Carrier respondents to the poll confirmed that rolls are happening more with more frequency. Ten of the 19 carrier respondents said they rolled many containers in the past month due to undercapacity, compared to three of 11 carriers polled in March.
   Another issue American Shipper has tracked through the TP Pulse surveys is how cargo rolls correlate with shippers who lock their rates in for the year. What’s interesting is that the percentage of respondents who said their rates are locked in has dropped in each successive survey. In November, 17 percent of shippers said their rates were locked in for the year. That dropped to 15 percent in January, 10 percent in March, and 6 percent in May.
   That suggests shippers are either not interested or unable to lock in annual rates, despite the inherent advantages such agreements can provide in terms of stability and predictability. For instance, American Shipper reported in January that transpacific shippers who failed to lock in rates were five times more likely to see their cargo rolled in Asia. That trend has held up even as the rate of shippers with locked-in rates drops. Only 2 percent of shippers with locked-in rates had cargo rolled in the last month, compared to 45 percent of those who indicated their rates are not locked in. – Eric Johnson