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Why the 2018 Chinese New Year will be different

Vendors selling New Year decorations in Singapore. ( Source: Wikimedia Commons )

Delayed CNY means port traffic will resume during March harvests

Team expedited carriers will name their own price to move delayed port freight in late March

Goodbye, year of the rooster; hello, year of the dog. The Chinese New Year is almost upon us, and, as logistics and shipping professionals know, the holiday has global effects on freight flows and supply chains. Millions of factory workers leave China’s coastal belt of megacities—from Tianjin in the north to Beijing, Shanghai, and down to Guangzhou and Shenzhen—and head back to their hometowns in the rural provinces, shutting down production and exports for up to three weeks. 

“These industries are reliant on migrant labor,” said Alan Morrell, Senior Trade Commissioner, Austrade Beijing. “Many workers from the poorer inland provinces return to their villages to celebrate the New Year with their families.”

The Chinese New Year is one of the biggest first quarter seasonality factors every year, and CNY 2018 will also have huge impacts on West Coast freight. This year, the holiday falls on Friday, Feb. 16, a full 19 days later than 2017’s CNY, creating a six week sweet spot between the western New Year and the Chinese New Year during which Asian shippers will push as much freight out as they can before everything shuts down. Shippers and ocean carriers taking advantage of that sweet spot should help strengthen American truckload rates during what’s traditionally the slowest time of year. Container spot rates from Shanghai to Los Angeles still haven’t recovered from their year-long slide in 2017—that rate was at $1,360 per FEU (forty foot equivalent unit) on Jan. 18, down from weeks prior and down 39% YOY. This may change as we draw closer to the Chinese New Year, when ocean carriers customarily drop one or two sailings a week to keep rates high during the pre-holiday surge. Platts reported two days ago that other North Asian headhauls—to London, to Rotterdam, and to the Mediterranean—posted gains over the previous week.

But the late holiday will have another interesting effect on the tail end of the celebrations, when the workers return to China’s east coast and freight volumes start picking back up. We expect normal freight flows to resume in mid- to late March, depending on how quickly China restarts production, and accounting for the 17 day container ship transit time from Shanghai to Los Angeles. The migrant workers staffing China’s east coast factories often use the holiday break to change jobs, so it can take a week to ten days after the ‘end’ of the holiday period for production to return to normalcy.

In every year since 2010, West Coast inbound container volumes reached a peak in May, regardless of the timing of the Chinese New Year. The latest CNY in that period was 2015 (Sunday, Feb. 19), represented by a grey line on the graph below. 2015 also saw the fastest growth rate in container volume leading into the pre-summer peak; current economic tailwinds suggest that absolute container volumes in 2018 will be higher than 2017, making that growth curve even steeper.

 (Image: Susquehanna Financial Group)
(Image: Susquehanna Financial Group)

Therefore FreightWaves expects 2018 to experience a sudden, sharp uptick in container volume on West Coast ports after the CNY lull; this year, that port traffic will coincide with California strawberry, lemon, artichoke, and asparagus harvests. We predict an extraordinary demand for trucking capacity on the West Coast and significant delays on getting freight out of the larger ports like Los Angeles and Long Beach. Low priority freight will sit in the ports as traffic ramps up, and eventually those shipments will become ‘must-haves’ for their customers.

The low-priority-turned-hot freight that needs to move quickly out of the ports represents a lucrative opportunity for team expedited carriers like Werner, Covenant, and CRST, who should be able to name their own prices in late March. Retail customers across the country will be desperate to quickly restore their dwindling inventories, and only team expedited carriers can offer short enough transit times to help their customers catch up. 

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John Paul Hampstead

John Paul conducts research on multimodal freight markets and holds a Ph.D. in English literature from the University of Michigan. Prior to building a research team at FreightWaves, JP spent two years on the editorial side covering trucking markets, freight brokerage, and M&A.