The market environment in 2023 is obvious to all. Many retailers have been clearing their backlogs for much of this year.
After a whole year of non-stop bombing, the destocking operation finally began to bear fruit. From large retailers like Walmart and Target to more specialized sellers like Bestbuy and Dick's Sporting Goods, they've managed to cut down on inventory.
In his 2024 sales estimates, Vivek Astvansh, a professor of marketing at McGill University, said retailers would face a dilemma: "Controlling inventory while also making sure there is enough variety to satisfy different consumers."
And Target's CEO is more blunt:"We will maintain prudent inventory positioning and awareness of category price reductions. "Translated into the vernacular, it is: there should be more categories, and ** should be low.
For example, the low-volume inventory management fee proposed for the first time in the 2024 logistics and warehousing fee adjustment by Amazon America, as well as the policy of significantly reducing the commission of low-priced clothing categories, shows that major retailers have a sales trend for next year**: low-price volume, fast in and fast out.
The "lipstick effect" of the economic downturn has made the inventory management of small and medium-sized sellers more difficult. In order to maintain a healthy inventory level, this requires another level of stability in logistics timeliness.
Although the first-chain crisis is no longer there, the wharf is not blocked, and there is no shortage of containers, the American line shippers in 2024 are still facing four potential risks.
Four factors that trigger 25% of sea freight**
Hapag-Lloyd CEO Rolf Habben Jansen said that sea freight rates will be **25% in 2024 due to the new carbon emission charges faced by the shipping industry as well as rising operating costs.
Container shipping "throat problem".
Two key container shipping "chokepoints" – the Panama Canal and the Bab el-Mandeb Strait in the Red Sea – are threatened at the same time.
The Panama Canal drought crisis is intensifying, and the costs are significant**. More and more shipping companies are diverting to the Suez CanalExpect shipping times to increase by about 7 days on average. Another possibility is that cargo owners may choose to avoid these two canals and turn directly back to the West Coast port.
Security concerns at the Suez Canal crossing are becoming more and more serious, and the latest Houthi statement warns ships not to have contact with Israeli ports. Earlier, an OOCL container ship had been accidentally injured.
The Suez Canal route takes 5 to 8 days longer than the Panama Canal. In order to maintain schedule service, shipping companies (on the transpacific route) must increase the number of vessels by 30-40%. There may be a capacity shortage at that time.
Potential strike risk on the East Coast of the United States
International Longshoremen'S Association) has a contract with dockers along the East Coast and Murf Bay that expire at the end of September next year. The unions have already threatened to go on strike in October.
The risk of strikes on the East Coast of the United States, the impact of the Twin Canals, and the diversion of cargo volumes on the East Coast may lead to port congestion and freight rates on the West Coast**.
Reduced airline shifts at higher frequencies
There is currently an industry consensus that freight rates will weaken throughout 2024 and possibly even into 2025. The financial situation of container shipping companies is under severe pressure, forcing more and more carriers to reduce sailings, resulting in worse schedule reliability.
According to Flexport's Global Head of Ocean Procurement: You can see that shipping companies like ZIM are launching high-quality (expedited) services. I think there will be more carriers to follow. Some people will say: Are you crazy?Why would you want to launch an expensive premium service in such a market?The reason is that cargo owners are looking for stability and they are willing to pay the price.
Present vs long
ZIM shifted 70% of its transpacific operations to the spot market this year (typically only 50%) because of their reluctance to sign loss-making annual contracts. The Hapag-Lloyd CEO said his company would refuse to sign long-term contracts that would cause losses. In his speech, a DHL executive said that during the current bidding season, ocean carriers are refusing to offer long-term agreements below cost.
In the last month of 2023, it can be seen that shipping companies are working hard to increase freight rates.
The market downcycle has caused many businesses to shift from long-term agreements to the spot market. Shipowners are more inclined to try their luck in the spot market and do not want to miss out on the opportunity for profit recovery that may be brought about by unexpected market movements.