In a typically English and understated way, one analyst thinks the US import market behaviour is “odd”, while another observer said, “we’re in unprecedented territory”, and a third says it’s normal for the US.
No-one had bet on the US consumers entering into such a spree and retailers ordering en masse but analysing the US consumer phenomenon has some analysts scratching their heads, particularly with the European market still seemingly on a go-slow.
Analysts cannot agree about the current spending spree that US consumers are on. Whatever is happening in North America at the moment, it appears to be anything but normal for a country suffering in the midst of a particularly virulent global pandemic.
Capacity on the Asia to Europe trades is down 7%, while on the head haul leg of the Atlantic trades, Europe to US East Coast, capacity is up 2-3%, but on the Pacific, capacity has increased 10%.
According to Sea-Intelligence, this year’s third quarter is likely to record a year-on-year contraction of just 0.1%, mainly hit by July volumes.
The Danish consultancy says that “there is a shift in consumption patterns away from services to physical goods, which would give rise to a need for stockpiling a large volume of goods different to what were previously sold. Second, restrictions of travelling and regular outings would potentially fund a higher spending on consumer products. Lastly, a change in working conditions necessitating a work-from-home approach has also driven consumer behaviour towards purchases for furnishing home offices.”
According to Simon Heaney, a container shipping analyst at consultancy Drewry’s, “The lines cut capacity [on the Pacific] based on forward projections, but they obviously over did it,” he added, “Predicting the Pacific market is difficult, I think the lines misjudged it.”
For Heaney the consumers in Europe are behaving normally, it is the US shoppers who have changed their behaviour. A similar point was made by Eytan Buchman, CMO at Freightos, who believes, “Right now the Asia to Europe trade is behaving a little more typically, [compared to the US market].”
But Buchman argues that doesn’t go the whole way to explaining the current consumer boom in the US. And he says that loads of PPE and medical equipment have now tapered off.
One senior bank analyst believes that the US consumers, unlike the Europeans, do not save money and that with the loss of the driving season and the expensive holidays, either at home or abroad, means they have money to burn in their pockets.
“Americans don’t raise their savings ratio, they divest their money by spending, and with money now dirt cheap, 1-1.5% the housing starts are up,” said the analyst, who went on to say he believes the spree will continue with Cyber Monday, Black Friday, Thanksgiving and Christmas all on the horizon, and with money in the pockets of consumers it should continue.
Meanwhile, European imports are down year-on-year while exports to the US from Europe are only slightly higher, whereas US imports from the Far East are up 8% year-on-year.
Independent consultant Jon Monroe offers anecdotal evidence of the US spree, “According to an Associated Press investigation, there is a shortage of approximately 5 million laptops for back to school. One school district that ordered 5,000 laptops in July, had their delivery pushed back from August until September. It was soon pushed further back to October. Many Target Stores have sold all of the laptops and computers in their electronics department and do not know when they will receive replenishments.”
According to the banking source, much of the boom in the US is to reinvigorate depleted stocks and Monroe’s tail of woe from Target stores would seem to hold water in that respect. However, the analyst added that Europeans tend to hold higher stock levels in warehouses and that has eased the markets back to life rather than the explosion of activity being experienced in the US.
That rush has led to retailers having difficulty in coping with the high rates, said Monroe. “Many big box retailers are experiencing a major surge in online orders and are converting many of their stores to fulfillment centers. Yet as we sit here, importers budgets are ballooning and in some cases about to explode from having to pay the extremely high cost of ocean transportation.”
Rates have, on the Pacific to the US, surged a further 5% this week reaching US$3,892/FEU according to the FBX spot index. The fact is that no analyst is willing to bet that the rates won’t top US$4,000/FEU for the first time. That is clearly a sore point for the carriers who have inevitably negotiated much lower contract rates at the early part of the year, with more than 50% of Pacific cargo moving under contract.
Monroe believes that the US buying spree will continue through to October, when China’s Golden week will see factories close. But the bank analyst says he can see no reason for the spree to stop there and he believes it could go on until early November when cargo dispatched at that time will not arrive before the pre-Christmas rush.
What does seem to be agreed upon is the surprise at the carriers’ ability to hold the line on rates. “We’ve not seen such a performance before,” said the bank analyst. He pointed to the 1991-1992 and the later crisis in 2008-09 where the lines had not managed to turn a profit.
However, he warned there will be over-capacity by the end of the year in the major east/west trade lanes. Discipline within the lines has been good through this year in very challenging circumstances, said the source, “Lines have gone from no capacity discipline to discipline within three years.” But he added, “Discipline is not a one-year event.”
He said if there is 10% overcapacity going into 2021 rates will start to come down, “Will the lines try to nick a bit of market share.” It is a distinct possibility. Not worth risking your shirt on.
Nick Savvides
Managing Editor
