Will Peak Season Come Early This Year?

 In freight rates, international business, International Shipping, ocean freight, ocean freight rates, ocean shipping, ocean shipping lines, peak season, shippers

CEO of Hapag-Lloyd Rolf Habben Jansen told CNBC that he thinks international shipping’s peak season is going to come early this year. Lori Ann LaRocco reported:

“I would also expect that peak season is going to start a little bit early,” Hansen said. “I also expect that there’ll be quite a number of people who tried to bring in their goods somewhere between June and August.”

What makes him think so? While she might fall just short of explicitly stating it, LaRocco clearly implies shippers planning ahead for the threat of an International Longshoremen’s Association (ILA) strike plays into Jansen’s thinking by placing this right before his quote about an early peak season:

… Hansen said U.S. shippers, including most notably retailers, are planning ahead this year for peak shipping season ahead of potential East Coast and Gulf ports strikes, in line with what logistics decision makers told CNBC at one of the world’s largest maritime/logistics conferences TPM, held in California last week.

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Early Peak Season

Jansen should be absolutely right about shippers importing early to beat the risk of disruption from a possible ILA strike. Importing and exporting early was one of the ways we suggested shippers protect themselves from ILWU port disruption, along with diverting cargo from the West Coast to the East Coast and looking into alternate sourcing options. Those same strategies, which worked for many shippers to avoid expensive delays from labor action during the dragged out ILWU contract negotiations, will likely be utilized by shippers to avoid port shutdowns on the East and Gulf Coast ports should the ILA strike. Of course, the West to East Coast diversions would be in reverse.

When it comes to shipping early, shippers planning to ship during the peak season wouldn’t even need to ship that early – or even early at all for some. The ILA has threatened to strike in October, which is fairly late in the peak season, after their contract expires at the end of September. Of course, they would want to give themselves buffer time to ensure their cargo isn’t still sitting at the East Coast ports when the strike happens – if the strike happens.

Many shippers probably only needing to move shipments up a little is likely why Jansen said “a little bit early” when talking about when he thinks the peak season will start.

Overstock Finally Depleted

There is another interesting factor at play. Retailers have been dealing with the problem of the aftermath of artificial demand. The economy has been far from booming under the Biden Administration. After government issued stimuli checks ran out and the surge of spending brought an end to bloated demand, retailers ended up overstocked. Slower economy meant a long period of retailers needing fewer imports. For the international shipping industry, the drop in demand brought freight rates way down along with major reduction in revenue and profit. Thought the Red Sea Crisis, along with Panama Canal restrictions to a lesser extent, pushed freight rates back up. Now, there’s reason to think demand will improve.

Retailers overstock seems to finally be reaching an end. Last year’s peak season was seriously dampened by the overstock. But now, with stocks appearing to at last be depleted, ordering increases seem like they’ll be happening before peak season gets here. That gives ocean carriers like Hapag-Lloyd an improved outlook for the remainder of the year. LaRocco quoted Jansen as saying the following:

“We also see that inventories are depleted in many cases and so far we’ve seen a good recovery after Chinese New Year,” Jansen said. “So we’ve been fairly happy with that.”

That certainly doesn’t mean we’re about to see another big shipping boom. It does, however, look like shipping demand will be healthier in the lead-up to the peak season, unlike what we saw last year. If restocking is done during this time, with the economy where it is, the peak season itself might be a mild one.

Freight Rate Outlook

When it comes to a freight rates outlook for the rest of the year, expectations should be that they’ll be healthy for carriers, which means probably higher than shippers would like. There doesn’t appear to be an ending soon to the Iran-backed Houthi attacks on ships in the Gulf of Aden and Red Sea. That pushes freight rates up.

Healthier demand now and into the peak season also bolsters rates.

However, if the peak season does indeed begin early, it would likely end early too. In that case, we could see freight rates drop significantly in the last two to three months of the year unless the ILA does indeed strike. The disruption of the strike would put upward pressure on freight rates while significantly increasing cargo traffic through the West Coast ports.

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