By Richie Lin    Photo：CANVA

Just when market expects the ocean freight rate will increase until the end of 2024, shipping lines reverse the trend to decrease the rates unexpectedly. There are several transparent or hidden reasons behind the decision-making progress of shipping lines.

However, we can use macroeconomic indicators such as PMI, durable goods orders, the inventory of manufactures and end-customers to predict the ocean freight trend in the near future. Even though shipping lines might use crisis in red sea, possible strikes in ports of US east coast, the ocean freight rate will be in the trend of going down after evaluating the latest numbers of PMI, durable goods orders, the inventory of manufactures and end-customers.

Asian base ports to US west coast ports: USD 5000~5500 for 40’/40HQ valid till August 31

Asian base ports to US east coast ports: USD 8500~9000 for 40’/40HQ valid till August 31

Asian base ports to Chicago/Minneapolis/Detroit: USD 8000~8500 for 40’/40HQ valid till August 31

Institute for Supply Chain Management (ISM) announced The Purchasing Managers' Index (PMI) in June was 48.50. 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 48.50 in June meant many companies are still negative on the future of economy and will keep deducting orders and productions. June’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 June was minus 1.7% 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(destocking), which also implies the end of the manufacturing cycle. In June, the inventory of manufactures is 45.40 and the inventory of end-users is 47.40. The difference is negative 2 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 August. Basically, it will take 3 months from receiving the orders to manufacturing the products. Therefore, economic indicators happening in this month will have at least 3 months’ ripple effects.

This means customers will not have many demands on the ocean freight, airfreight, or any other types of logistics until the end of 2024. Recent increasing rate is only the manipulations of shipping lines on blank sailings, fears of strike in ports and the red sea crisis.

Given that some companies would still plan to build up the inventory for the sales in Thanksgiving, Christmas and New Years Eves, shipping lines would use the supply and demand tactic 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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