Why the US ‘freight recession’ is impacting the trans-Pacific container trade far more than the trans-Atlantic

The post-Covid US trade slowdown is impacting household goods demand far more seriously than industrial freight demand, according to analysts appearing on the latest episode of The Freight Buyers’ Club podcast, produced with the support of the Dimerco Express Group.

This explains why since the second half of 2022, the trans-Pacific container trade has seen freight rates and demand drop far more significantly than the trans-Atlantic, and why domestic trucking and air cargo markets have turned bearish.

Jason Miller, Interim Chairperson, Department of Supply Chain Management, Michigan State University, Eli Broad College of Business, believes the U.S. economy is not displaying any serious “red flag indicators” that an economic recession is imminent, but is suffering “a freight recession” that is affecting logistics and shipping lanes in varied ways.

He said US credit card delinquency rates were still below pre-Covid rates, mortgage delinquency rates were falling, wage growth was still “very robust” and demand across key parts of the economy including motor vehicles, parts, heavy equipment and “everything associated with infrastructure” was performing well.

But demand for imported non-industrial products typically shipped by container or via air freight solutions such as clothing, computers, phones and furniture had significantly fallen away.

“Anything single family housing related has been very much hit by this huge cool down of housing activity of roughly 30% from this time last year,” said Miller (see video here available for publication).

This is one reason why, according to Miller, the US trucking market has been in recession since the third quarter of 2022.

It also helps explain why the westbound trans-Atlantic container shipping market has been performing far better than imports to the US from Asia, according to Judah Levine, Head of Research, Freightos.

Levine told The Freight Buyers’ Club that the current US freight recession was in part due to heavy imports in the first half of 2022 which had left many retailers with huge inventories. But, he added, this had impacted the trans-Pacific headhaul market far more than US imports from Europe.

“If you look at the trans-Atlantic, rates there are still more than double what they were in 2019,” he said.

Even though rates on the trade have fallen around 50% since their peak earlier this year, Levine said the decline had been far less severe than on the trans-Pacific where spot freight rates had collapsed.

He said this was because the two trades were driven by different types of imports.

“When we talk about the trans-Pacific; it’s consumer goods,” he said, adding that what people were buying now was also very different than during the pandemic when bulky household goods were in high demand.

“On the trans-Atlantic, it’s a different mix of goods and actually demand is still higher than it was in 2019, even though it has been declining,” he added.

Miller said when he examined individual tariff codes in detail, he found the trans-Pacific boom in 2021 and second half of 2022 was “really primary housing”.

By contrast, the containerised goods being shipped in heavy volumes on the trans-Atlantic from Europe to the US in 2022 were products such as Portland cement, gypsum, electrical storage batteries and other chemical products.

“So, it’s much more that industrial side of things, and especially the non-residential construction space, which is still very strong right now in the US,” he said. “And so that’s why we just can’t generalize.

“Eastbound trans-Pacific is down, but that doesn’t mean that westbound trans-Atlantic is going to fall off a cliff in the same manner.”

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