This week a few of our team members attended the Journal of Commerce (JOC) seminar of the Midyear Breakbulk and Project Cargo Report that discussing the spillover market. The spillover market has been triggered by the Covid-19 Pandemic. Once this happened, many carriers were responding quickly to meet the needs of the shippers. With spot rates falling, the congestion of the market finally began moderating. With the rate finally moderating, multi-purpose rates began plateauing to rates of pre-pandemic lows.
JOC data showed an upswing in the number of containers amongst a shift of cargo that began to drive up rates way up since 2020. The charter rates began to slid since summer 2022 began. With the spill out market taking an effect on other sections that has been driven by what happens in container shipping. We have begun to see a softening of container demand in part to ease in the spot rates. While the spot rates falling, it is still elevating as rates are currently 2x more than they were prior to the pandemic. While we are seeing some positive changes in the market as imports are beginning to grow, the general economy has been moving towards services. As there has been 2.7 year of increases due to the demand and capacity the assets are moving slower to soak up demand. I questioned how many container lines will manage this new capacity? With factors like shippers paying longer read times and delays on I.P.I side it appears that warehouses and cross-docks are clogged. However, looking at the data things are slightly improving and have begun to trend upwards. As things are beginning to increase, all hands are on deck due to a lack of infrastructure that has factored into the spill out market.
With the lack of infrastructure at play here, we must have multiple plans in order to ensure that there is a plan in motion for all sorts of potential errors. We need to question if Plan A falls apart what is the Plan B and if there is an issue with Plan B do we have a plan C lined up. It is important that we have a plan made for all possible scenarios to guarantee that we are prepared for any circumstance. With a lot of potential technical issues as stake here, the primary focus should be on the core business. Prioritizing the business will allow for a clear focus on building long-term relationships with carriers and customers and to establish a want for such good relationships by making for example, a three-year commitment. Within three years, see what you are able to accomplish with a carrier at hand.
The biggest take away is looking at the market 5-6 months ago and then looking at the market were in today. We are clearly not in the same market we were back then and that with this positive change in market development there is a lot of speculation along with a lot of opportunity. One of the biggest opportunities that can be gained from this midyear review is looking to obtain a higher volume of long-term clients opposed to a big spectrum of short-term clients. If we can bring on new carriers that have more dedicated lanes and frequent freight that gets moved then it will allow for more opportunities to locate smaller vessels to help locate these long-term clients. We are working to actively find new ways to collaborate with carriers that can also cater to smaller vessels that are quickly in and out of ports. This will provide possible new opportunities for working with big shippers to design new containers that are designed around minimizing the effects on the environment.
With these new goals and plans in mind, there are a lot of projects lined up in the pipeline that we believe can help display the supply chain as a collaborative industry. Since we are now looking back at the pre-Covid market, shows us that there is “not just a spillover” but opportunities for renewable energy. With this promising new market outlook, global carriers in the shipping community and high-speed supply chain are branching out of the typical network. A review of the complete lack of fleet renewal shows a demand increase dramatically. With a lot of new projects on the horizon we are currently struggling due to a lack of ships to handle the upcoming demand.
As the container rates are beginning to come down, other rates are not going down but container rates have begun to fall while multipurpose rates are holding strong and it is difficult to predict what may come in the future. We will always work to find solutions and to review the spillover market but we are looking for different solutions than what has been discovered before. Are there different alternatives or a hybrid mode that can be used instead of the same situation we’ve been working on previously? Or have these solutions and ideas been tested previously and were found to be ineffective? Regardless of the hypotheticals, we are committed to researching new solutions and constantly reviewing the information gathered from the spill out market to best analyze the following quarter.