During the fourth quarter earnings call of the largest retail chain of U.S. Costco (Costco), the company's chief financial officer Richard Galanti called the recent situation of drop in container freight rates, container shortages and reduced port delays "see a little dawn at the end of the tunnel."
"In general, pressure from rising commodity prices, rising wages, rising transportation costs and supply chain disruptions remains," he added. Costco's quarterly results, released on the 23rd, exceeded expectations for Wall Street , but Costco's gross profit margin in the fourth quarter was squeezed due to rising inflation and rising freight and labor costs, and its stock price fell about 3% in extended trading.
This month, the performance warning released by FedEx has aroused wider attention from the global investment community on the logic of " business flow determines logistics". The two major ports in the United States, which account for nearly one-third of the total imports of goods in the United States, recently announced a decline in imports. Among them, the Port of Los Angeles, California recorded the largest drop in incoming goods since the early stage of the epidemic.
At the same time, the sky-high shipping prices continued to plummet at this time last year. "The long-term contract price in 2020 is US$3,000 to US$3,500 in the United States and West, and the spot price in the market has hovered around US$2,000." Roger (pseudonym), a senior US expert in the United States and West, who has worked in the shipping industry for more than 20 years, told the reporter of First Financial that from the fourth quarter of this year to the first quarter of next year, the United States is still in the period of consumption transformation, retailers are destocking, and it is foreseeable that the year-on-year single-digit decline in imports is expected.
Roger also predicted: "On the one hand, there are high inventory, and on the other hand, consumption transformation, high inflation and hidden worries about economic recession. The volume of goods has declined, but the capacity has inherited the level of 2021. Supply and demand are imbalanced, and confidence in the future market is lost. Freight prices have been falling."
"Seeing a slight improvement in some areas"
Currently, US inflation is still at a high level, and in August Consumer Price Index (CPI) is still higher than 8%. At the same time, according to US Bureau of Labor Statistics data, the average annualized income of Americans in August was 5.2%, and consumer purchasing power is being continuously impacted.
targeting U.S. inflation, Garlandi said his company “sees a slight improvement in some areas.” Costco, as a shipper, has noticed improvements in supply chains and a decline in spot container prices.
"There is hope for this downward trend in some other contracts as they continue." He added that there will be no longer any major transport capacity issues or container shortages, and port delays have improved, while Costco has made attempts to disperse delivery to different ports in the past two years of "hard to find a box".
Last year, major merchants such as IKEA entered the market when there were sky-high shipping prices and "a box is hard to get" and bought boxes and rented boats by themselves, trying to skip the intermediate link to prepare for shipping on their own. However, this month IKEA said that it had sold the containers that it "buyed" last year.
"In the winter of 2021 when container shortages, we decided to temporarily purchase containers to support our shipping partners." IKEA responded, "We have sold these containers. In terms of supply, IKEA has no intention of permanently developing this business model. We are exploring other solutions to alleviate supply chain tension." Daejin Lee, chief shipping analyst at
SP GlobalMarket Intelligence, told the First Financial reporter that container freight rates fell sharply in the third quarter and the slowdown in the growth of container trade demand is a response to high inflation and consumption patterns.
In September 2021, Oceanwide container freight once exceeded the peak of US$20,000/40-foot container (FEU), and now freight continues to fall. The First Financial reporter checked the global container freight index launched by the Baltic Shipping Exchange and Freightos. It shows that the freight price of for the west coast of the United States, is US$3,441/40-foot container (FEU), and the freight price of 7,657/FEU for the China/East Asia to Nordic Europe.
Cargo volumes in the two major ports in the United States and the West fell
In January 2022, the Southern California Marine Exchange and the Los Angeles and Long Beach Marine Transportation Service Center set a record of 109 ships waiting, but recently, the number of waiting ships has dropped to 8, a record low.
In terms of ports, after two and a half years of record freight volume, Los Angeles Port in August finally got some leisure: cargo volume fell 15% compared with the same period last year and 9% lower than the five-year average.
, Executive Director of the Port of Los Angeles, Gene Seroka, believes that this is composed of multiple factors. First of all, many shippers who are expected to delay will ship in advance to ensure delivery. "This kind of just-in-case strategy is already common in the market compared to traditional instant tactics," he said.
Secondly, sustained inflation is also working. “Of course, consumers and retailers are getting a little anxious,” he said. “Some companies with higher inventory levels have been discounting their products to gain greater flexibility in the fourth quarter. In addition, we are starting to see production orders outside Asia being cancelled.”
Third, some shippers also moved their goods to ports along the eastern U.S. and along the Gulf of Mexico to hedge the potential risks posed by ongoing West Coast labor contract negotiations.
In 2021, the US procurement boom caused by the epidemic had overwhelmed the Port of Los Angeles. Last year, the Port of Los Angeles handled a record 10.7 million containers, the highest record in its 115-year history. In the first seven months of 2022, the import volume of the Port of Los Angeles was comparable to that of 2021, but this momentum began to weaken in August.
Currently, the number of days trucks waiting for goods at the dock is closer to the average number of days before the epidemic, that is, 3.7 days, far lower than the peak of last year's 11 days.
Neighbors of the Port of Los Angeles Imports of Long Beach Port have declined for two consecutive months. Codro, executive director of Port Long Beach, said: "You will start to see a slight cooling of the economy. We expect consumer demand to decrease in the past year and a half. "
Roger told the First Financial reporter that judging from the retail sales and inventory data released by the US Census Bureau (USCB) on September 15, retail sales in August remained at a high level, and the total retail inventory continues to rise, which shows that it will take a relatively long time to "destock".
"It can be judged that imports in the fourth quarter will be lower than the same period last year." He believes that inflation easing is a positive signal that the US government is trying to send out, and actual inflation is still at a very high level.
"Gasy oil prices rebounded after falling a few days ago, at an absolute high." Roger said, " Fed again raised interest rates this week. The suppression effect of later consumption will gradually appear, and there is no good news about the rebound in goods."
Beijing time on Thursday (22nd) early this morning, the Federal Reserve announced its September interest rate resolution. Federal Open Market Committee (FOMC) decided to raise the target range of federal funds rate by 75 basis points to 3.00%~3.25%, which is the third consecutive major interest rate hike since June. Federal Reserve Chairman Powell said at a press conference that the goal of fighting inflation has not changed and will persist until the task is completed, which may cause an economic and labor market to slow down and there is no confirmation of a recession.
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