By Richie Lin 

Shipping lines announce another GRI (General Rate Increase) on November 1st after decreasing their rates for several months. So this week we can try to explore if the economic numbers can support shipping lines’ decisions. First of all, we can check the PMI (Purchasing Managers’ Index) issued by the Institute for Supply Chain Management (ISM).

The PMI is based on a monthly survey sent to senior executives of more than 400 companies in 19 primary industries, which have major contribution to U.S. GDP. The PMI is based on five critical survey areas: new orders, inventory levels, production, supplier deliveries, and employment.

The ISM weighs each of these survey areas equally. The surveys include questions about business conditions and any changes, whether it be improving, no changes, or deteriorating. 

The PMI is usually a number from 0 to 100. A PMI above 50 represents an expansion when compared with the previous month. A PMI number under 50 represents a contraction, and a number at 50 indicates no change. The PMI in September was 49, which was still under contraction but was already better than 47.60 in August.

This increasing trend shows that economy is still at contraction period, but it is already close to the brink between expansion and contraction. This trend also represents many executives of industries treat the future of economy with slightly positive attitude because they keeping receiving new orders even though the inventory is still high.

Secondly, we checked the yearly increased rate of Durable Goods Orders. Durable Goods Orders refer to the order status of goods that are expected to have a useful life of more than 3 years. It is a crucial data point provided by the U.S. Census Bureau in their monthly "Manufacturers' Shipments, Inventories, and Orders" report, usually around the 25th of each month. As manufacturers need orders in place before finalizing their production plans, durable goods orders serve as a leading indicator of manufacturing sector activity. In this report, the focus is primarily on durable goods compared to non-durable goods. This is because the demand for non-durable goods, such as clothing and food, tends to be relatively unstable and unpredictable.

Therefore, it is the "durable goods orders" that are closely monitored as they have a significant impact on manufacturing sector performance. Yearly increased rate of durable goods in September also increased from 3.26% in August to 7.75%. And if we exclude the large purchases such as airplanes or defensive contracts, the number of ordinary consumer durable goods like cars and home appliances increased from 0.50% to 2.36%.

It usually takes around three months from receiving new orders to ship out orders actually. Therefore, we might see more shipments will come out in the following months. Thirdly, shipping lines keep using the blank sailings to reduce the space allocation in the market. According to the current report, there are over 300 vessels and over 1 million containers idling on the ocean.

This will definitely reduce the supply in the market to imprint an image of space shortage on the minds of customers. Combined with the latest numbers of PMI, Durable Goods, and blank sailings strategy of shipping lines, the rate increase in November might have an opportunity to maintain for several months.

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