Container Shipping Profitability Creates Risk
The container shipping industry has swiftly transitioned from a state of prosperity to one of decline. The sharp drop in prices is leading major container ship operators to incur losses on previously profitable trans-Pacific routes, as reported by the WSJ's Costas Paris.
This is an alarming indicator for the sector as it gears up for its busiest period. As per the Freightos Baltic Index, the average daily freight charges from Asia to the U.S. West Coast via the Pacific now stands at approximately $1,500 per 40-foot container, a drastic decrease from over $14,000 last year.
The rate from Asia to Europe has also tumbled, currently at around $1,400 compared to nearly $11,000 the previous year. Despite the free-falling prices that marked the earlier part of spring seeming to stabilize, the rates for both these trading corridors are currently similar to those of 2019. With shipbuilders set to introduce more capacity into the market, shipping companies find themselves with little leverage in a container market increasingly dictated by the buyers.
Major Retailers Taper Inventory Reduction Initiatives
Major retailers are concluding their inventory reduction initiatives that have exhausted distribution networks and crippled freight carrier revenues. Both Walmart and Target have recently indicated that their stock levels are healthy, as reported by the WSJ Logistics Report, a positive turn of events following a year that saw merchants reduce orders due to overcrowded warehouses and lagging consumer demand.
Target's executives suggest that the era of overstocking is behind them, and the focus now shifts towards introducing new merchandise into stores for the autumn and holiday seasons. This shift would be a welcome change for freight carriers, who have been anticipating a restocking phase to uplift the currently suppressed cargo volumes.
Some operators have reported that customers are indicating that inventory reduction is essentially complete, although new consignments are not yet being dispatched towards distribution centers. The extent of restocking, however, is still uncertain: Target mentions that its strategy will center around "inventory efficiency."
Shopify Sells Fulfillment & Logistics Along with 6 River Systems
Flexport, a San Francisco-based freight forwarder, has acquired Shopify's fulfillment and logistics operations, expanding its services to include warehousing, packing, and shipping for Shopify's merchants. The acquisition will enable Flexport to establish itself as a direct competitor to Amazon's fulfillment services. This move is part of Flexport's strategic plans to expand its offerings and capitalize on the growth of e-commerce during the pandemic.
The combination of Flexport's technology platform and Shopify's logistics capabilities will allow merchants to simplify and optimize their supply chain operations, so they can focus on designing and selling great products. Shopify's fulfillment network has grown to over 20 fulfillment centers across the U.S. and Canada, with the ability to ship to 99% of the U.S. population within two days. With the rise of e-commerce over the past year, Shopify has seen increased demand for reliable and affordable fulfillment solutions.
Flexport's revenue grew 56% in 2020, despite the challenges posed by the pandemic. According to eMarketer, e-commerce sales in the U.S. grew by 32.4% in 2020, reaching a total of $794.50 billion. With the continued growth of the e-commerce market, this strategic move by Flexport will likely benefit both companies and their customers, as they seek to streamline supply chain operations and provide reliable and affordable fulfillment solutions.
According to the WSJ, the sale includes warehousing automation firm 6 River Systems, effectively ending Shopify’s attempt to stand up its own logistics fulfillment operation alongside the e-commerce sales technology platform it offers merchants.
Warehouse Jobs Fall to a 15 Month Low
Based on the latest data, warehouse jobs have recently reached their lowest level in 15 months. This trend is driven by several factors including increased automation, labor shortages, and a shift in business focus towards value-added activities within the supply chain.
Between February and March, U.S. employers eliminated 11,800 warehouse and storage positions, based on the preliminary jobs report from the Labor Department, which has been adjusted for seasonal variations. Since June, warehousing companies have cut close to 50,000 jobs, as retailers with excessive inventory began scaling back due to uncertain consumer demand, according to WSJ.
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