The February 2023 jobs report showed some serious job growth, estimating that over 300,000 new jobs were added to the economy. During an average year, that would be tremendous; during a period of economic hardship, like the current global marketplace is still struggling through, you would typically expect those numbers to be big news. Job growth (or the lack of it) is one of the most commonly used statistics economists look at to make their projections and otherwise assess the health of the economy, because the number of employed people impacts everything else—for example, consumer spending.
But, for some reason, other current statistics aren’t showing that much of an increase at all, which is odd. Not all of the stats correlated to job growth are necessarily positive ones, either—for example, increased inflation usually correlates with increased employment numbers. That aside, the majority of other economic metrics are typically the ones associated with healthy, growing economies.
Think about everything that happens when someone is hired as an office worker, for example. Not only does that person get added to payroll and begin drawing a paycheck (and paying taxes, and often receiving benefits—health insurance premiums, 401k contributions, etc.), there are countless other small economic activities that take place from this new hire. The business will often purchase their equipment, like computers, possibly office furniture; coffee in the office will be consumed a bit faster and need to be purchased more often or in greater volume; and frequently (though less typically than a few years ago) that new employee will have some type of commute. A generously short 10-mile commute will consume a gallon of gas every day, and that’s assuming the new employee never makes any stops along the way at a coffee shop.
The point here is that additional jobs correlate with additional economic activities, and those other activities have historically increased right alongside job growth statistics.
So why isn’t the shipping market bouncing back alongside these statistics?
We’re still in a strange economic situation
Consumer spending habits have changed so dramatically that traditional data analysis methods may not be viable, at least until things change. Think back to the early days of Covid, back when toilet paper and hand sanitizer was next to impossible to find, but think about everything else that went on, too. There was a huge spike in consumer purchasing for all sorts of products, not just consumable or wellness products, partially fueled by stimulus distributions.
A significant chunk of the middle class kept their jobs and shifted to remote work. That meant they still received their paychecks, but also received “unexpected” (at least at the beginning of 2020) windfalls from these stimulus checks. A surprising number of these people used that money not just for maintaining their standard of living, as you normally expect (covering housing payments, putting food on the table, paying bills, etc.) Many used those checks ($1,200, $600, and $1,400 per eligible person, plus additional funds for dependents; the maximum benefit for a married couple with three child dependents totaled $13,900 between April of 2020 and March of 2021) to make purchases they otherwise might have put off. These are long-term, durable purchases—recreational vehicles, televisions, living room furniture, and other high-ticket items that will last for years before they need to be replaced.
But… how many couches does someone need to buy? Not one every few months for the next ten years. The same goes for RVs, televisions, and more of these types of durable goods. But for a few quarters, demand skyrocketed for those types of items. In response, businesses started ordering more of their products, just as you’d expect them to. The problems began when factories started getting overloaded and ports saw significant slowdowns in their turnaround time for unloading. The shipping backlog dragged on for months—but demand started slowing down as the market cooled off from that flurry of stimulus activity. So businesses suddenly woke up one day and realized that they had (in some cases) doubled up on their inventory, and slowed down or stopped their ordering activity in favor of inventory liquidation.
To summarize: a surprising number of long-term, high-value products saw a tremendous spike in demand and sales, businesses overordered to meet that demand, and when the pendulum swung back in the other direction, they dropped their high volume and began selling what they already have. Businesses are now making much smaller, more tightly focused orders for these types of products, rather than focusing on stocking up ahead of time.
Basically, the United States economy packed in a few years’ worth of purchasing activity into one year, and it’s going to take some time before demand rebounds. But that’s compounded by other unusual circumstances:
Economic uncertainty has changed public psychology
For the first time in many years—for some in the younger generations, maybe the first time in their professional lives—interest rates are no longer at fire sale rates. Interest rates were cut way back and kept low for years, which meant one thing for lots of people: very cheap financing. That’s part of what was fueling big ticket sales like RVs during the Covid demand spike: buyers were able to finance it at extremely low rates. Cheap, low-interest loans are much harder to find. In Q1 of last year (2022), the average 30-year fixed mortgage rate in the United States was just over 3%. This week, it’s 6.5% (source).
This is intended to reduce inflation, and it will, but it will also make consumers less likely to spend money on unnecessary items even if they have it. Everyone who’s been to the grocery store in the past few months has noticed how much prices have gone up across the board. For some items, even sale prices are higher than their old regular price—certain types of coffee, for instance. Add on rumors of issues with some banks and whispers of “recession” in hushed voices, and you have consumers wary of overextending their budgets.
Many consumers have begun questioning what constitutes a “necessary” expense for themselves. Remote work, for example, means that many employees aren’t stopping for a coffee on their way into the office, buying less gas, eating out less often, and a thousand (or more) other small (but, combined, significant) purchases that they have decided they can live without.
We need new types of data
All of this combined means that old indicators of economic strength (or weakness) may no longer be as accurate as we’re accustomed to. Jobs reports like February’s are still great news to hear, but they no longer mean that we can necessarily look forward to increased consumer spending anymore. Enough consumers are being cautious and keeping an eye on their spending habits closely enough that the data we used to rely on may no longer be viable. This means economists will need to start looking for new sources of information to make their predictions.
Until we have methodology that’s as solid as we’re used to, it might be hard for some businesses to accurately anticipate the demand for their products. That means that the current state of freight shipping and inventory ordering will likely remain as it is for at least a while longer. Currently, many businesses are on a beak-to-trough system, ordering only what they know they’ll need—and will be able to sell. That’s perfectly understandable. In short: when consumers are watching every penny they spend, businesses would be smart to match their caution, and keep a close eye on their own inventory practices. Too many overextended and found themselves in tricky situations—full warehouses with too few customers to sell to—and were seriously damaged as a result.
Businesses should work with a partner who can help them manage their ordering processes step-by-step, from factory floor to last-mile delivery. The more efficient you can make these processes and the more agile you are with your operations, the better you’ll be able to respond to a rapidly shifting market landscape.
There are a number of reasons for some of the significant carriers to team up with one another (instead of directly competing). These alliances allow the carriers to pool cargo between them, and share their resources without trying to outdo the competition on pricing. Over the past decade, several carriers have made similar agreements with one another to take advantage of the opportunities working together affords them. We’ve been through several generations of major shipping alliances by now, and the latest is considered to have really begun in 2017.
This latest generation included three major alliances—2M, Ocean, and THE.
2M: Maersk, MSC, and ZIM.
Ocean: COSCO, OOCL, Evergreen, and CMA
THE: Hapag-Lloyd, ONE, HMM, and YML.
These types of alliances have come and gone since the nineties, but this latest round is a bit different from ones we’ve seen before. The scale of the combined carriers is much wider than previous arrangements. 2M, for example, represents 30% of the world’s container trading capacity. This type of consolidation plainly has an impact on global shipping—and has, in some cases, raised antitrust concerns. Let’s take a closer look at the carrier alliances, and what the future might look like.
The Biggest Alliance Benefit: Standardization
One of the most obvious reasons for the success of franchises like McDonald’s is an essentially universal experience. Big Macs in Florida are just like Big Macs in Wyoming; it’s always familiar, which is comforting. But shipping practices and available technologies aren’t always identical between carriers.
One of the most significant market-wide benefits of these alliances has been the expansion of digitization practices. Shipping a container with one carrier within an alliance is a much more standardized experience than it used to be. And with much of the shipping field allied with multiple partners, processes are now very nearly identical. This improved interoperability results in a much simpler experience for most customers, which can help make your own processes simpler in turn.
Market Impact
While carriers are enjoying benefits on their end and customers are receiving a more standardized experience, alliances aren’t necessarily helping the shipping market. The International Transport Forum—and inter-governmental organization (operating within the Organization for Economic Cooperation and Devolopment, or OECD) with 65 member countries dedicated to providing policy makers with accurate information and recommendations to improve the global transport system—released a report in 2018 titled The Impact of Alliances in Container Shipping. The report takes a negative view of alliances, indicating that they are not having a positive impact on global trade.
The report indicates that these alliances are causing a number of market conditions that are unfavorable for their customers. Because the shipping industry has become much more tightly concentrated, competition is dramatically reduced. The sheer size of these carriers allows them to dominate shipping volume, creating a market imbalance that squeezes out other, smaller carriers who can’t compete within their individual shipping lanes. The concentration of shipping also leads to less efficient use of public infrastructure, reduced schedule reliability, and longer wait times for shipping.
Shipping customers tend to want simple things: lower costs, reliable service, and speedy deliveries. The mere fact that options are reduced by the lack of competitive options makes those priorities harder to come by on the open market.
Some Alliances are Ending
While this isn’t exactly breaking news, the 2M Alliance is coming to an end. In 2025, when the terms of the alliance expire, they will not be renewed, and the largest carrier alliance will no longer be in effect. We’re facing some interesting changes in the global shipping industry. With 2M dissolved, suddenly the market will have significantly greater competition. It should also be noted that the other two main alliances may eventually follow suit. While there’s no news to report in that regard, it’s possible that they also elect to dissolve their agreements.
Fewer alliances and greater numbers of individual carriers will mean some changes. First, as technology grows in different directions, it’s possible that we’ll start to see diverging experiences from one carrier to another. Since they’re no longer pooling resources, one carrier might invest in new types of digital tracking systems, for example, and offer their customers a more proprietary experience that another carrier can’t. And that’s just one tiny potential facet of what we might see.
Greater market competition will allow individual carriers the opportunity to distinguish themselves from their competitors. Tighter, leaner operations might offer greater reliability, of course, which is always beneficial. But, for many shipping customers, the bottom line is where they focus their attention.
While the end result of dissolving alliances won’t really be known until after they’ve ended, we can make some predictions on a number of aspects of container shipping. And it’s obvious from every market report that price competition is likely to be fiercer in the future. When carriers need to compete with one another, the simplest way to attract greater volume is with competitive pricing, along with better service.
Fewer alliances and increased individual carrier operations will mean shipping customers will have more options than they’ve had in a long time. Pricing, service experience, customer relations, technology—when you have a less standardized experience, customers will find the best shipping partners for their business, something that is harder to do when you only have a few options.
Of course, we strongly recommend working with a third-party logistics provider like OL-USA. As a single-source partner, we can help you find the right carriers for you at the right time—which might be harder to do in a landscape with increased competition. We can help you find and secure the best possible shipping rates with the most reliable carriers—without signing a long-term contract.
Early return dates (ERDs) can give anyone the chills. For example, imagine you just successfully finished a grueling negotiation to deliver a large shipment to an overseas buyer. Your company organized a trucking company to transport goods to the port over the next week. You even paid for the storage costs of your goods before they get loaded onto your vessel.
But as soon as all this was finalized, you were told your early return date (ERD) shrunk from a week to only 2 days. Sound familiar?
The unfortunate reality is that situations like this happen far too regularly. Suddenly, all your careful planning is for nothing, and you face extra costs at every turn. The ERD nightmare is real.
There is no easy fix to problems stemming from changes in ERDs. It is an industry-wide problem that plagues all shippers and is the source of many sleepless nights for shipping coordinators.
What can you do to manage the risks of changes to ERDs better?
What Is ERD?
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no advanced notice for shippers.
ERDs- A Multi-Layered Challenge for Ocean Exports
The importance of ERDs for shippers is that they need to make sure their containers don’t arrive too early at ports. Otherwise, they face demurrage penalties, storage fees, chassis rental costs, and other charges. But if their containers arrive late, their cargo may miss the opportunity to get loaded onto the vessel.
This balancing act isn’t always easy. During the pandemic, more than one-quarter of shippers reported that they experienced ERD changes, with about 7% reporting that these changes cost them $1000 or more.
What compounds these difficulties is that many ocean carriers reduce sailings in response to the negative economic impacts of events like Covid-19 and the Ukraine conflict. The net result is that companies looking to transport goods experience even greater headaches.
The worst part is that ERDs can, and all too often, change with little notice. Almost always, these schedule changes cost shippers more money. When profit margins are already tight, these unexpected charges can cause many sleepless nights.
So, in the face of such a tumultuous environment, how can shippers manage these risks and better operate under the constraints of ERD?
Hope for the Future
OL USA strives to help eliminate problems in global trade. We know the challenges you face and the hardships brought about by changes in ERDs.
OL USA is dedicated to transparency through the use of our proprietary track and trace system. We are a full-service transportation partner that can help your business face challenges in transporting goods worldwide.
And there are other reasons for optimism moving forward. Governments in the U.S. and worldwide have responded to the surge in shipping by addressing industry shortcomings. And the scope of financial resources made available with the surge in shipping activity means that there are powerful incentives in place to improve the current system.
With advances in technology and the surge in stakeholder interest in creating a more efficient flow of goods, ERD nightmares can soon become a thing of the past.
Together We Can Succeed
We all know the importance of providing goods and services to markets around the world. It is in everyone’s best interest to work together to find workable solutions to today’s problems.
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no notice for shippers. But OL USA can help.
Early return dates (ERDs) can give anyone the chills. For example, imagine you just successfully finished a grueling negotiation to deliver a large shipment to an overseas buyer. Your company organized a trucking company to transport goods to the port over the next week. You even paid for the storage costs of your goods before they get loaded onto your vessel.
But as soon as all this was finalized, you were told your early return date (ERD) shrunk from a week to only 2 days. Sound familiar?
The unfortunate reality is that situations like this happen far too regularly. Suddenly, all your careful planning is for nothing, and you face extra costs at every turn. The ERD nightmare is real.
There is no easy fix to problems stemming from changes in ERDs. It is an industry-wide problem that plagues all shippers and is the source of many sleepless nights for shipping coordinators.
What can you do to manage the risks of changes to ERDs better?
What Is ERD?
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no advanced notice for shippers.
ERDs- A Multi-Layered Challenge for Ocean Exports
The importance of ERDs for shippers is that they need to make sure their containers don’t arrive too early at ports. Otherwise, they face demurrage penalties, storage fees, chassis rental costs, and other charges. But if their containers arrive late, their cargo may miss the opportunity to get loaded onto the vessel.
This balancing act isn’t always easy. During the pandemic, more than one-quarter of shippers reported that they experienced ERD changes, with about 7% reporting that these changes cost them $1000 or more.
What compounds these difficulties is that many ocean carriers reduce sailings in response to the negative economic impacts of events like Covid-19 and the Ukraine conflict. The net result is that companies looking to transport goods experience even greater headaches.
The worst part is that ERDs can, and all too often, change with little notice. Almost always, these schedule changes cost shippers more money. When profit margins are already tight, these unexpected charges can cause many sleepless nights.
So, in the face of such a tumultuous environment, how can shippers manage these risks and better operate under the constraints of ERD?
Hope for the Future
OL USA strives to help eliminate problems in global trade. We know the challenges you face and the hardships brought about by changes in ERDs.
OL USA is dedicated to transparency through the use of our proprietary track and trace system. We are a full-service transportation partner that can help your business face challenges in transporting goods worldwide.
And there are other reasons for optimism moving forward. Governments in the U.S. and worldwide have responded to the surge in shipping by addressing industry shortcomings. And the scope of financial resources made available with the surge in shipping activity means that there are powerful incentives in place to improve the current system.
With advances in technology and the surge in stakeholder interest in creating a more efficient flow of goods, ERD nightmares can soon become a thing of the past.
Together We Can Succeed
We all know the importance of providing goods and services to markets around the world. It is in everyone’s best interest to work together to find workable solutions to today’s problems.
An early return date (ERD) is a policy introduced to help manage the flow of export containers into ports to reduce congestion. Problems arise because ERDs change far too frequently. And the worst part is that ERDs change with almost no notice for shippers. But OL USA can help.
