Two things are clear at the moment: Freight volumes are too strong given a weakening economic climate and are likely to catch up with reality later this year. The news item this week that Hasbro is encouraging retailers to get their toys moving across the Pacific earlier this year illustrates the type of tactical decision making behind the volume surge that may not be in line with underlying economics.
The freight recovery is seen as being driven by re-stocking rather than a surging economy, and thus will peter out at some point soon. Transport stock prices have pulled back some 15% in recent weeks, the reason being lack of confidence in the sustainability of the freight recovery. As Ed Wolfe of Wolfe Trahan put it this week, the pullback is "related to macro concerns about a potentially slowing economy. While freight feels great right now, if world is slowing so will freight," or so-goes the thinking.
Among other things, if freight does indeed slow as the year goes on, this will put to the test container lines' newfound confidence in their ability to keep capacity additions in check and maintain currently high rate levels. The Drewry eastbound trans-Pacific index continues to climb, indicating that the forces of supply and demand are still playing to the carriers' favor. But what if volumes slow? A lot of capacity has been put back on stream. Will carriers roll back slow steaming? Will they engage in a skirmish for market share and force rates back into unprofitable levels?
From a shippers point of view, in my opinion, this would represent wishful thinking. Rates may soften but it's hard to see a collapse coming. The container shortage --a real thing, not a diversion concocted by carriers to keep the pressure on rates as some have alleged-- will put a break on weakness. It's not impossible that carriers' DNA was altered, at least a bit, by staring bankruptcy in the face last year such that they may now realize the recklessness of rate cutting to protect market share.