COVID-19’S IMPACT ON PEAK SEASON SHIPPING
27/09/2022 - hoàng anh - 2 Comment
What does a normal peak season look like? It’s when traditional supply and demand factors materialize before the holiday buying season. Peak season takes place from August through October, so importers have enough time to receive their products and place them on store shelves. Most orders happen in Q3 for Asian exports to key markets in North America and Europe. Another brief peak season happens at the beginning of each year in January or February in expectation of the Chinese New Year. This is when many factories in China shut down for a week, or more, leading to another capacity crunch. Again, import demand exceeds capacity as importers rush to ship their cargo before factories shutdown.
The Shifting Season
Pre-Covid, peak season was the time when carriers would make their money after struggling to break-even most of the year. There was no surprise when steamship lines implemented $1000/container General Rate Increases or Peak Season Surcharges. There’s little choice for importers but to pay. Today’s market is completely different as ocean freight rates are on a free-fall for the past few months.
Last year’s peak season was the complete opposite. Shanghai to Los Angeles rates were nearly 6x more expensive than they are now. Keep in mind, the ocean carrier’s money train has been relatively short. Container shipping used to be the one of the worst-performing industries for a long time. Just recently, since Covid, have the ocean carriers raked in such high profits. According to a report in the Financial Times, by the end of 2023, the container shipping industry will have made as much money in three years as they made in the past six decades.
The Rationale
Historically, the Just-In-Time model was used by most companies. That was when the fluidity and predictability of supply chain was down to a science. The supply chain is now more complex. Because of Covid, supply chain vulnerabilities in the U.S. infrastructure have become clear. Importers have changed their strategy from Just-In-Time to Just-In-Case. With the Just-In-Case model, importers aim to have an excess amount of inventory to act as a buffer for any uncertainties. This can also lead to too much inventory. Walmart and Target, to name a few, cancelled billions of dollars of purchase orders to manage the excess inventory. They are not alone, as retailers continue to offer steep discounts to make room for the holiday goods. For small and mid-sized importers, now is a good time to load up on inventory. Especially for those who feared they were being priced out of the market these past few years due to high shipping costs.
Tags: supply chains, freight rate, maritime, shipping