By Richie Lin    Photo：CANVA

When ILA (International Longshoremen's Association) started their strikes on October 1st, everyone in ocean freight markets all expect the ocean freight rate will increase substantially if the strike keeps for days or even weeks. Shipping lines even announced the port congestions surcharges after October 15th to warm up the rate-increasing movements. However, ILA reached a tentative agreement with USMX (United States Maritime Alliance) to end the strike on October 3rd. The tentative agreement is for a wage hike of around 62% over six years.  Even though the strike is over now, but shipping lines might still take the advantage of backlog containers idling at the ports of US east coast and Mexican gulf to increase rates after October 15th. However, after reviewing the current macroeconomic indicators such as PMI, durable goods orders, the inventory of manufactures and end-customers, the ocean freight rate will be in the trend of going down in the following months, even though shipping lines will always try to manipulate every crisis to increase the rates.

Institute for Supply Chain Management (ISM) announced The Purchasing Managers' Index (PMI) in September was 47.20. The PMI is surveyed by Institute for Supply Management (ISM) which conducts monthly questionnaires for manufacturing purchasing managers with complete 10 indicators, including new orders, production, employment index, supplier delivery, inventory, client inventory, price, export, future such as orders and raw material input, and finally aggregate them into the manufacturing Purchasing Managements' Index. 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. PMI 47.0 in June meant many companies are still negative on the future of economy and will keep deducting orders and productions. September’s PMI can show the economy is not good and the gigantic inventory built up during the pandemic still restricts retailers and wholesalers to issue new orders. This is why the yearly increased rate of Durable Goods Orders in September was minus 0.08% if we deleted the orders of airplanes and defensive equipment. This meant companies in USA are still concerned about the sales of their products in several months and will keep restraining cautiously on issuing orders and productions. And we can also use the comparative numbers of inventory between manufactures and customers to show how bad is the economy. In the context of the ISM Manufacturing Index, if both the manufacturer's and customer's inventories remain low, it suggests that manufacturers in the overall manufacturing sector may have the opportunity to increase orders and enter a phase of replenishing inventories. By subtracting one number from another, we can understand the inventory situation upstream and downstream. When the difference between inventories and customer inventories widens, it indicates that customer (end-user) inventories are at a low point, and the supply chain is in the phase of replenishing inventories. When the difference begins to decline or even becomes negative, it reflects a continuous increase in end-user inventories and a slowdown in the demand for goods, entering a digesting inventory phase, which also implies the end of the manufacturing cycle. In September, the inventory of manufactures is 43.90 and the inventory of end-users is 50. The difference is negative 6.1 points, which meant the economy is in contraction period. The main target is to digest the inventory instead of manufacturing products for the future consumptions. This will also decrease the requirements of international ocean freight.

After reviewing the latest PMI, yearly increased rate of durable goods orders, and inventory of manufacturers and end-users, we can definitely conclude that international ocean freight rates will keep going down in the fourth quarter of 2024. Even though Fed has announced to lower its key rate to 4.75%-5.00% after 5.25 percentage points of increases between March 2022 and July 2023, it will take months or even years to make economy come back to business expansion. This means customers will not have many demands on the ocean freight, airfreight, or any other types of logistics until the end of 2024. Shipping lines will definitely use every global crisis to keep up the rates as much as possible. But eventually the rates will turn around and go down again because the consumptions haven’t actually come back yet.

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