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Container shipping readies for overcapacity-driven volatility

The mood at TMP23 was generally upbeat despite the specter of a rate war in the trans-Pacific and the suspicion that the industry is approaching a period of “volatility due to overcapacity.” Below are major points that were covered at the conference. 

  • According to S&P Global, the recession risk is fading for Europe and North America. However, persistent inflation should continue to suppress growth.
  • The shift away from China has been slow, but it accelerated last year. China accounted for 40.7% of all US imports in 2022, down 1.7 percentage points from 2021 and the lowest level since 2006. According to David Petraeus, partner at KKR, no country can replace China’s manufacturing might.
  • Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, believes the trans-Pacific is already in a rate war. He said the industry’s historic profits could make an escalation bloody and long. He also warned that spot rates on the trans-Pacific will continue to fall in March and April if carriers don’t increase blank sailings amid new capacity.
  • MSC’s CEO said that MSC and Maersk will wind down the 2M Alliance at the end of 2024. He stated that the carriers are on different trajectories. MSC is set to receive 753,000 TEU of new capacity in 2023, while other major carriers will take delivery of roughly 1.2 million TEU combined. 
  • Many are hoping that the White House’s new nominee for labor secretary, Julie Su, can kickstart negotiations between the ILWU and PMA due to her background as former labor secretary of California. While labor chief, Su worked with longshore workers to establish a training program for cargo lashers.

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US shippers are finding LTL savings, but no ‘price war’

Some US LTL carriers are being tested with their pricing discipline due to an ongoing decline in shipment volume. Several shippers said they are receiving larger-than-expected reductions in contractual rates from LTL partners, with some rates down 10% YoY.

However, that doesn’t mean a rate war is underway or approaching. Other large LTL shippers said they aren’t seeing large price cuts and some are seeing modest rate increases. One high-volume LTL shipper said, “From our perspective, there is not a market correction going on. Although we continue to experience decreases in other modes, LTL is not one of them. It could be because we didn’t take the large double-digit increases in 2021 and 2022.”

On earnings calls, some carrier executives claimed that LTL contractual renewal rates were rising on average. Shippers said that most rate decreases were coming from middle-tier LTL providers.

Shippers will be disappointed if they expect across-the-board LTL rate cuts such as those seen in the truckload sector. LTL carriers can hold their ground on rates due to underlying differences in pricing structures, costs, and capacity.

There are still opportunities for shippers to lower their LTL rates and costs. Mike Regan, founder of TranzAct Technologies, said, “If you already have okay pricing, and you offer carriers freight where they need it in their networks, you will see a significant reduction not just in rates but in accessorial charges.”

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About O’Neill Logistics

O’Neill Logistics is a leading third party logistics provider. We operate in California, Savannah, New Jersey. We service many verticals including Garments, Fashion Accessories, Footwear, Furniture, Home Goods, & Electronics. Additionally, we offer omni-channel distribution and all value-added services. Lastly, we focus on retail “drop shipment” fulfillment and item-level fulfillment services with same-day service offerings.

O’Neill Logistics has over 2 million square feet of state-of-the-art facilities. Additionally, we offer dray services to support the warehouses and provide distribution to retailers and wholesalers. Our reliable 3PL platform combines sophisticated technology with robust, flexible processing designs and speed-to-market gateway models.

Lastly, we aim to simplify your supply chain. We deliver exceptional service and can optimize your operational performance. Therefore, we aim to build, protect and foster strong business partnerships.

Please reach out to us if you have any questions or need assistance with your logistics solutions!