THERE are growing expectations that global carriers will soon pull the lever of capacity management with volumes slowing and spot rates rapidly eroding on the eastbound trans-Pacific.
It is a strategy they would return to for the first time since 2020, reports IHS Media.
When volumes evaporated at the outset of the Covid-19 pandemic in the spring of that year, ocean carrier alliances swiftly removed underutilized trans-Pacific capacity in a stark display of the blank sailing capability they had gradually been acquiring over approximately five years leading to that moment.
When volumes rapidly recovered a few months later and then soared far beyond pre-pandemic levels throughout 2021 and into this year, carriers cancelled trans-Pacific sailings - but almost entirely as a result of US port congestion and other factors such as China's Covid-19 lockdowns making scheduled departures from Asia impossible to deliver.
"Right now it feels to me that the market is being allowed to behave as it should under free market conditions. In other words, we're not seeing a lot of blank sailing intervention," said Bill Smith, vice president of business development at CV International, Inc, a non-vessel-operating common carrier (NVO).
"But my personal opinion is that the carriers probably have a floor in mind and if they see the decline in demand longer term, they can, and I expect they will, shore things up in terms of blank sailings capability which they have proven extremely capable of doing when they choose, but I am not seeing that in a strong manner, at least not yet."
Currently "I don't think the market has found its new normal. There will be a new normal, but none of us know when that will be," Mr Smith said.
Indeed, with volumes slowing and capacity freed up as port congestion has eased, at least on the West Coast, all signs are pointing to that day approaching, perhaps soon.
Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, said recently its data did not currently show any increase in blank sailings over the baseline seen in 2022. But he added that capacity was increasing as it was released from the normalizing of extended supply chains.
"As demand remains weak, it would make sense - purely from the perspective of balancing utilization - for the carriers to start increasing blank sailings, but we're not seeing it yet," he said.
Murphy wrote in a recent Sunday Spotlight newsletter that given carriers' currently scheduled vessel deployment on the trans-Pacific capacity growth would outpace even the most generous assumptions of demand growth. This would have the effect of firmly dropping utilization below the 90 per cent threshold and signalling continued downward pressure on freight rates, a situation that would reveal carrier appetite for capacity deployment.
"The question is how the market would respond to such tactical capacity management at present, as freight rates are certainly coming down, and seemingly faster than was expected, but they are still considerably above pre-pandemic levels, so the carriers may find quite a lot of opposition to blank sailings right now, especially as schedule reliability remains horrendous," Mr Murphy added.
Carriers have learned that matching capacity with weakening demand is a strategy that works to great effect in limiting rate erosion. In a recent media briefing, Hapag-Lloyd CEO Rolf Habben Jansen suggested a new round of blank sailings may be in the cards.
"In Spring 2020, we lost from one day to another 20 per cent of our revenue," he told reporters. "If you do that, you have to make sure that you take cost out, because otherwise you are going to run against the wall, and that's what we have been looking at and what we will be looking at going forward. If there is not enough cargo to fill all the ships, we will try to save some costs to protect our business."
Despite trans-Pacific eastbound volumes being up nearly 29 per cent so far this year versus the same period in 2019, and up nearly 6 per cent versus 2021, a marked slowdown is under way.
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