A hazy outlook on how the market is going to develop, combined with currently ample ocean capacity, is causing shippers as well as logistics providers to postpone capacity commitments for the time being, according to executives of Seko Logistics.
Seko CEO James Gagne described the current atmosphere in the market with the acronym VUCA – volatility, uncertainty, complexity and ambiguity – which has gained currency in recent months. There is little visibility into where the market is going, while it remains vulnerable to disruption.
Recent macroeconomic trends have added to the uncertainty. After a spell in which it seemed that interest rate hikes had come to an end, at least for a while, recent warnings that there could be another one or two increases later this year threaten to dampen demand, Mr Gagne noted.
Expectations of a recovery in the second half have weakened since the start of the year. Direct-to-consumer brands have seen lower demand, although the prospect of new products coming to market this year provides some modicum of optimism, he said.
A peak surge in ocean traffic is not imminent.
“All indications are that we’re not going to see these peak bookings in June and July that we had in the past,” remarked Brian Bourke, Seko’s chief commercial officer.
On top of these signals, an abundance of ocean capacity compared to demand gives beneficial cargo owners (BCOs) and 3PLs confidence that there is no need to scramble to find transport, noted Seko COO international, Steen Christensen.
The gap between capacity and demand means that rates are still under pressure.
“It’s still a very unsettled market, which is rare for this time of the year,” he said.
“As late as this morning the ad hoc rates dropped again […] and that tells a story. That story is that the market hasn’t landed yet where it wants to land. Essentially that means that a lot of long-term contracts that we wanted to enter into, we haven’t necessarily done that yet.
“For now, few long-term contracts have been entered into and primarily we are in the spot market with our customers,” he continued.
He does not anticipate the focus on the spot market to end at least for the next two to three weeks. Seko will probably sign contracts in about 30 days.
“What I hear about activity between the BCOs and the carriers directly, there’s a little bit more activity in long-term contracts, but yet a lot are still sitting out there,” he said.
Although there are no signs of a capacity crunch, uncertainty hovers over the outlook for the market, due to ongoing concerns over supply chain vulnerabilities.
“One constant is disruption,” Mr Bourke remarked, adding that at the moment, it is the potential for it rather than actual congestion that is keeping everybody on edge.
The situation at the ports looks relatively stable, but the railways have struggled with performance issues. According to Mr Christensen, the ability to utilise multiple routings and gateway options should help offset any problems on this side. Mr Gagne added that the US administration is eager to ensure that flows through West Coast ports will remain fairly fluid.
Still, companies have to be ready for disruptions. According to Hans Hickler, Seko president Americas, it is only a matter of time before some hiccups affect flows.
“You don’t know when you’re going to get knee-capped, but sooner or later [it happens],” he remarked, adding that the critical element for his company is to be able to respond quickly to issues that arise for customers. First and foremost, this means a capability to offer multiple solutions at origin and destination points to add resilience to customers’ supply chains.
Over the last two years forwarders had to muster much flexibility to navigate the pitfalls and stumbling blocks that supply chain disruptions caused. At this point it appears that the sailing should be smoother, but it is vital to be prepared for problems.
How far this translates into longer-term contracts, as it did in recent years, remains to be seen.