Supply Chain Secrets
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Supply Chain Secrets
The Disappearing Peak: Capacity Chaos, Tariff Tremors & What Shippers Must Know Now
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Is peak season already over? In this no-holds-barred episode of Supply Chain Secrets, guest host Don Davis and industry veteran Lars Jensen deliver a firehose of insight. They expose the vanished Trans-Pacific peak, decode the chaos behind West vs. East Coast rate disparities, and unpack what looming tariffs and overcapacity mean for your freight strategy.
Lars dives deep into real NYFI spot rate data, global emissions trends, and the shipping industry's dirty secret: a structural overcapacity problem that scrapping and slow steaming can’t solve. Don adds frontline insight into customer booking behavior, holiday crunch risks, and why shippers may be gambling too long on a “wait-and-see” strategy.
Key Takeaways for Shippers:
- Peak season came—and went. Are you behind already?
- Why East Coast rates are holding—but West Coast optimism vanished.
- 16% fleet growth vs. 10% TEU growth = long-term overcapacity warning.
- How new EU emissions data proves carriers are speeding up—but still late.
- The October Chinese Golden Week could cause a crunch. Are you ready?
If you ship cargo, this is the insider episode you can’t afford to miss.
Hi everyone, you're listening to the Supply Chain Secrets Podcast. I'm your guest host, Don Davis, filling in for the vacationing Caroline Weaver. And as usual, co-hosting here is Lars Jansen. Lars, how are you doing? And uh where are you? Hi, Don. Great to be here again.
SPEAKER_02I am in the mountains in Chamonix, in France. Same place as last week.
SPEAKER_01That's great. Well, uh, you go to uh very unique places. I'm very jealous. I'm still here in boring Virginia Beach, but uh which is not bad. It's a hot summer, so we're all trying to survive. So what's the latest and greatest? What's uh what's top of mind when you think about the news uh for the week?
SPEAKER_02For the week, a few things. Uh what's going on with the disappearing uh peak season or spike on Trans-Pacific, but also some of the wider topics in terms of overall supply and demand balance, and also I've been digging into some of the uh emissions numbers coming out from the EU. So I think we've got plenty of good topics to cover here today.
SPEAKER_01Yeah, definitely.
SPEAKER_02Why don't I keep off by trying to Yeah, definitely.
SPEAKER_01And I was gonna say it would be it'd be interesting to start off talking about the the the peak. Is there a peak? Yeah, did it already happen? What what's your perspective on it?
SPEAKER_02There was a peak and it's already gone again. Uh so if we look at the latest spot rate data from the NIFI, so again, to remind the audience, these are spot rates that are actually being paid because it's cargo we know for a fact has been on the ships. These are the rates from Asia to the US West Coast, the one called Far East, de facto China. And we can see both for China, Southeast Asia, and Northeast Asia, the peak has been here and it's gone again. And we are essentially back to square one. You can see all the spot rate data all the way back to where we were just before the peak for the China terrorists, which is not really a good sign for the Pacific market overall, because under normal market circumstances, we should be smacked in the middle of peak season right now. We should not have seen rates come back down yet. This is for the West Coast. If we look at the east coast, the pattern is more or less the same, but be mindful of where we are on the scale here. As you can see, even though we've come off the peak on the east coast, rates have not declined all the way back to the peak course level. So we do see a difference in the market here on the Trans-Pacific, depending on whether we actually go to the East Coast or whether we go to the West Coast. And the interesting question then becomes where do this difference come from? I have my hypothesis, let me share that first, and then let me hear your take on it, Don from the sharp end of the market. The way I see it is when the peak first started, there was an enormous influx of capacity coming into the west coast. This is the easier trade to put capacity into. We saw the usual carriers on blank to blank sales, but we also saw a host of smaller carriers start new services. These are also the services that are now very rapidly being pulled back again now that the spike from the expected China spike did not happen. The East Coast has by and large been a lot more stable in terms of capacity. There has been an injection of all capacity, there's been a little bit of withdrawal, but from a capacity perspective, it's a lot more stable to the East Coast, which can also explain why the East Coast holds up a little bit better right now, whereas the West Coast has I will not use the word collapsed because it hasn't. It's still very compensatory rate levels that we're seeing. It's not a disaster at all, but the usual peak season is completely gone compared to what we should expect. But that would be my hypothesis on why we see this slight discrepancy between East and West.
SPEAKER_01But how do you see it done? Well, we see a similar pattern. I think you're you're right that uh on the West Coast you saw carriers deploy capacity. And as you say, it's it's easier to deploy capacity on the the West Coast because if when you go to the East Coast, you really only have two options. I mean, I'm not including the Red Sea in the options. Uh it would be either the Panama Canal, which you need berthing windows to pass through the canal. Otherwise, you're bidding and it becomes very expensive, or you can go around the Cape and you can go around the Cape, it just takes a long time. So you need more ships, you need more containers. So it's a little bit more challenging. So that's why I think you see it's easier for carriers to pivot. Not that it's easy to pivot in the first place, but of the two options, it's easier to pivot to the West Coast, which is why I think you saw more of a rise and fall on the West Coast. East Coast was, again, impacted in a similar way, but not at to the same extent as the West Coast. And I think that's just largely because of the capacity injection.
SPEAKER_02A thought just on my part, I would guess, but what have you heard from your customers that when the pause on China tariffs were first announced, if importers wanted to get cargo moved fast, obviously moving it through the West Coast would be the faster option as well. Was that a consideration as well?
SPEAKER_01Yeah, I mean, to some extent. I mean, I think some companies have their distribution centers located on the East Coast. So if they are trying to expedite things, things that needed to be prioritized, certainly uh they would go through the West Coast. Uh, we have a priority service uh that's similar to EX EXX and Matson that we saw was pretty heavily utilized just for that reason. But then you saw the normal shipping pattern to the East Coast, but there was definitely a surge. And you know, there's some question of will there be any other surges going forward once we have a clear picture on what's happening with the tariffs. And we hear different things from different people. It's very difficult to aggregate that data together and make a forecast of what's gonna happen. So I think there's a lot of wait and see because there's still just uh quite a bit of uncertainty about uh what's gonna happen.
SPEAKER_02I think it's a topic we've been discussing here. I was about to say for several months now what is going on with the tariffs. And at least my take on the market is there's not gonna be any certainty this week. Next week, we all know there's the August 1st deadline coming up for either the old reciprocal tariffs or the new tariffs from the letters. Then let's keep in mind that the letters that went out from the US government has not been instituted legally anywhere. It's not in any executive orders. So for now it's still the old reciprocal tariffs. That can, of course, change prior to August 1st. But I would also expect for most US importers, even if, and let's say it's an if, that all the reciprocal tariffs or the tariff letters they do come into effect August 1st, I would expect most US importers to still pay wages, learning from what we have seen in past months that even when new tariffs are implemented, they could rapidly be followed within a few days or a few weeks by changes to those tariffs again. So I'm not sure August 1st, or for that matter what is August 14th for China will necessarily bring any certainty uh in itself either. So I would expect to continue to see relatively subdued press import demand for the coming weeks.
SPEAKER_01I mean it certainly seems that way. I think from a booking pattern standpoint, it's been fairly consistent for the past few weeks, which again, you haven't seen this any sort of increase in demand. And and the feedback we get is that you know people are are waiting. But again, you're sort of running out of time if you haven't shipped already, because usually the peak is caused by the holiday season, and um you know you only have so many days before you can get inventory on the shelf. So it's a question of has that been shipped yes or no? Again, it depends on different companies. They have different sourcing strategies. So it's it's a little hard to unpeel everything and and and put it together and say this is what's gonna happen. So and we continue to wait and see. I mean, for now, things are fairly stable, but again, we're we're waiting to hear what's gonna happen. And certainly we should have hopefully a better perspective sometime in August. But uh again, that's anyone's guess.
SPEAKER_02And then if we think a little bit further out, we all need to also keep in mind there is the usual Chinese Golden Week, first week of October, when a lot of the factories shut down in China, which de facto means for a lot of the US importers, if they want their goods in for the holiday season, they need to be produced at least towards the latter part of September at the very latest. So if things start to pick up, we could potentially see a crunch time first on vessel capacity and during September or second half of September, maybe first week of October, and then everybody importing there will be in one mighty rush when this hits the coast in the US. So that's gonna put tremendous strain on the logistics networks internally in the US, right up until the holidays.
SPEAKER_01Yeah. And if I think about shippers, like what to do, I think the most important thing is just communicate your plan to your partners because um I I think about these things. It's always very difficult for us to pivot quickly because containers get consumed pretty quickly, capacity gets consumed pretty quickly. So the more you can share your intention with your partners, I think the better off you'll be getting the space and containers that you need.
SPEAKER_02A good data point to pick up on here as well is when we had the pause in the Chinese tariffs, even though the carriers really tried to scramble and put in more capacity as rapidly as possible. We can see on the hard data that de facto it took about three weeks before that capacity physically was actually being rammed up. So it simply takes time.
SPEAKER_01Yeah, definitely. So, Lars, when you start to think more long term and you start to think about, you know, what else you're seeing in the market, is there anything else that's top of mind when you think about carriers, their behavior, and things that are gonna impact the market?
SPEAKER_02So one thing that I think should be top of mind is the fundamental balance between supply and demand and what happens when the Red Sea is not there. Now, the Red Sea has been with us for more than a year and a half. We almost take it for granted, but we shouldn't. Eventually it's gonna go away. And this is again where a few numbers might be interesting. If we look back to the end of 2023, just before the end of uh just before the Red Sea crisis, we all know there was overcapacity. Most carriers were loss making of waterline loss making at that point in time. We can all argue a bit on how do you measure overcapacity, but it's a fact there was overcapacity. If I take that as a starting point, since then, the global vessel capacity, the fleet, has grown 16%. At the same time, demand measured in TEU has grown only 10%. So no matter how you slice and dice it, whatever overcapacity we had at the end of 2023, it has grown at least 6% worse fundamentally. But of course, it's the Red Sea crisis. So if we measure demand in TEU miles, demand has grown 25%. So capacity of 16, demand up 25, which is of course why the market was especially under pressure last year. Vessels have been sped up in order to try to make ends meet. But that's the Red Sea crisis. So if we magically wave the wand, then overcapacity would be worse than what it was in 2023. But there's another perspective I think is equally valid. That is, what if we take as a starting point, where were we at the end of 2019 before all the pandemic disruptions, red sea disruptions and everything? I was about to say in the good old stable days. Since the end of 2019, the global fleet has now grown to 40% to zero. At the same time, if I measure demand purely in TEU, it's up only 14%. That is a major discrepancy between growth and TEU growth. If I measure TEU miles, again, taking the Red Sea into account, it'd be up 33%. These numbers simply don't add up. So again, if we take the long perspective, 40% capacity growth, 14% demand growth. That that doesn't balance, but there's a couple of you know say hidden factors in there. One is that we've had almost no scrapping ever since 2019 because of all these uh disruptions. We are probably now at a point where at least 8 to 10% of the treaty is right for scrapping. It's not gonna be scrapped instantaneously, that's gonna take time. Also, when I analyzed the period prior to the pandemic, actually vessels were simply going slower, year by year by year, and that was at a rate of about 2% per year. So another 10% you can argue should be absorbed in slower vessel going. But even when I take these factors into account, we do seem to have some structural overcapacity issue underlying this old market, ranging from 2019 and up to now. And it's not that the carriers are holding back in the orders going forward. Right now, I think the order book to flee ratio is around 27-28%. The saving grace here is this stretches all the way out into 2029. So the order book stretches out four years. So it's not that we're getting all this thing with okay, we're gonna be okay. But fundamentally, I think we should all keep that in mind. We do have a structural issue in terms of overcapacity, and the way I see it is also an issue that is not fully resolvable by taking slow steaming into account and by taking pent and scrapping into account. Right now, saving grace is, as I mentioned, the Red Sea crisis.
SPEAKER_01Yeah, I I think it's interesting when whenever you look at the the order book. I think the order book is something we've been talking about for a long time, and and you can see that the math says there's gonna be overcapacity. You know, I can't speak to what motivates each individual carrier strategy. Um, I think there's scrappings. I think there's also charters that carriers have, which maybe they're looking to replace with their own vessels, but I think there's different thoughts around that. And in four years, you know, I think a lot, a lot of things are going to change. I think you're gonna continue to see a shift in the Asia trade to Southeast Asia from China. What does that mean in terms of port coverage? Does that require carriers to have more vessels to call some of these ports in Southeast Asia while maintaining a China service? I think you look at what's happening in Latin America, and Latin America has been definitely a growing market as well. And is there a need for additional capacity there? I think the challenge, there's more infrastructure in some of the hubs, whether it's Cartagena or Kingston, Freeport, but there are challenges there. But I think in some ways you can see that there is growing demand and how carriers are going to manage that. Again, hard to tell, but certainly the the order book gives uh everyone a reason to kind of pause and think about uh what's happening in the markets.
SPEAKER_02Absolutely. And also another element that we can say a quirk of the order book is that it's not evenly distributed uh across sizes. There's clearly a preponderance towards the large and medium-sized vessels and not so many of the small vessels, whereas all the ships that are pending to be scrapped, they are all small vessels. So we might have a discrepancy in terms of appropriate vessel sizes also uh going forward.
SPEAKER_01Right. And uh that's always the challenge uh because I think that the charter market has done very well with some of the smaller sized ships because carriers aren't really building those anymore, and that seems to be uh an outlet to get ships of of that kind of capacity. I think there was something else you mentioned, Lars, to to cover, and you were looking at the MRB emissions data. And and what did you find when you examined that information?
SPEAKER_02Yeah, I mean, first of all, for those that are not familiar with the acronyms uh the MRV, that's basically the legislation that's put in place by the EU, where shipping lines, not just container carriers, but all shipping lines, have to, at the end of every year, report work with the emissions for vessels related to EU shipments. That means emissions for any vessels within EU ports or vessels that come from outside to an EU port or out of an EU port. So it's not global emissions, it's EU emissions. And the interesting thing when I started to dig into the 2024 data was, I mean, obviously I focused on the container shipping sector. And what I found was that the total emissions in 24 compared to 23 was up by 45%. We shouldn't be surprised at this massive sudden jump in uh total emissions because obviously 2024 solar ships go around Africa. Not really surprising then that total emissions increase dramatically. To put that somewhat in perspective, that increase alone is about the magnitude of the full uh emissions of the country I've Cambodia seen over a full year. So it's not small potatoes we are talking about. There's an argument to be said that you could place the full blame on the Houthis because they're basically the reason why ships have to go around Africa. Now that's one thing, that's the total emissions. Then I got more intrigued and said, well, you can't really see whether the carriers have become more or less emissions efficient at that level, of course. But the MRV data also requires the shipping lines to report at an individual vessel level what is the average amount of fuel a vessel spends to sail an optical mile. That's an interesting one because then I can look at every individual vessel and say, this specific vessel, how many tons of fuel did it spend per mile in 2023? And how many tons of fuel did it spend in 2024? Exactly the same vessel. It doesn't matter that it sails longer, it's a matter of fuel efficiency per mile. And of course again it fluctuates, there's both up and downs. But overall, ships are spending five to six percent more fuel per mile in 24 than they did in 23. So how are we to understand this? Is that because the ships suddenly and magically became less fuel efficient? I don't believe that for a second. I don't believe the entire fleet on average suddenly became less fuel efficient. Every single vessel saw an increase that their engine degraded or suddenly had a lot of uh barnacles grow on their holes. I don't believe that. The only rational logical explanation here is that ships to and from the EU, at least on average, were simply going faster. Which again tallies with what we experienced in 2020. The immediate shock of the Red Sea, where we simply didn't have enough capacity at the beginning to go around Africa, meant that some of these vessels were sped up to try to make ends meet. This also then ties over and hey, if they're speeding up, why are we still seeing poor reliability? Well, apparently speeding up was not enough. That was just enough to try to make ends meet. But you can say at least the carriers to some degree, you can argue, tried to make up for some of the gaps, but it was just not enough. But the emissions numbers actually indirectly tell us how much did the carriers speed up also in 2024.
SPEAKER_01Yeah, I think that's an interesting point because I think carriers take a lot of grief over their on-time performance, and uh rightly so when you're hovering around 50-52% uh on-time performance, that's not uh gonna make anybody too excited. But um it does underline the point that carriers are trying to run an on-time service. We are speeding up. There's just operational constraints that can't be helped uh somewhere in the rotation. And we see this all the time. I think one of the things, for instance, that we saw, we've had a pretty poor performance in Savannah this year. Now that's cleaned up, but it was because we had snow. It doesn't normally snow around here, but uh we did, and when it all evaporated, then we had fog and and you just couldn't get in and out of the port. And carriers are trying to make decisions on omitting, are they just gonna wait? You know, it takes seven days to get into the port. But these are the types of things, you know, it's hurry up and wait because somewhere along the rotation there's an issue and it can impact you. But I think it is helpful for people to understand that carriers are trying. You can see it in speeding up of ships, but again, there's some things that you you just can't work away around your way around it because uh there's an operational constraint in this port or that port.
SPEAKER_02You see it in Europe as well, where we've seen many carriers tactically or intermittently changing their schedules coming into Europe, either omitting port calls, injecting port calls that were not in the original schedule, trying to do what they can to at least avoid some of the congestion areas in Europe. And when I look at European ports, there seems to be at least a little bit of improvements in some of them compared to where we were, say, a month ago, but they are certainly not out of the woods just yet. And that should give rise to concern because we are now approaching the time where peat season volumes start to arrive into Europe.
SPEAKER_01Yeah, I mean there always seems to be this or that challenge which uh impacts your ability to service the the industry because again, there's there's certain ports in different places which seem to impact you. And as soon as it gets fixed on the one side and maybe impacting you on the other side, um, this is sort of the the balance that we try to to manage. And I wonder how it gets better. I mean, we talked earlier about the order book and that people are ordering uh larger ships. Well, if you already have things that are impacting your ability to get in and out of a port on time, what happens when you add you know more capacity to the trade and there's more ships, more containers you have to load? I mean, it's it's a tricky situation. You want to service the demand, that makes sense. But again, if you can't run a product that's on time, how do you solve this problem? Again, I don't know the answers, but uh it certainly gives you food for thought in terms of the challenges that the industry faces as we go forward.
SPEAKER_02And you also mentioned earlier part of the new network setup also, if you look over the next five to ten years, is gonna include a lot more port calls in what we today might consider secondary ports, and for example, Southeast Asia might consider more port calls Latin America, Indian subcontinent. The question is to which degree a lot of these ports are geared to efficiently handle the 15 to 20,000 TEU vessels that do make up a sizable part of the new buildings that are coming.
SPEAKER_01Yeah, definitely. And I mean, what we saw, I mean, just to give people some perspective, what we saw is, you know, we during when the uh trade for war first started, we rationalized two services and we sent those ships into other trade, and not necessarily all went into one trade. They added a ship in a loop, and that was typically to add another port call because it just slows you down as you make different kinds of port calls. So, to what extent is the order book going to be consumed in that way? In what sense is that still gonna require ships to speed up? That's something we're gonna have to watch with interest, but there are different factors and carriers try and find use for these vessels and how it all plays out. It's uh anybody's guess at this point, but uh certainly something interesting to think about. So, Lars, we've covered a lot today. I don't know, is there anything else that uh you want to cover for this week? Anything in the look week ahead to think about?
SPEAKER_02No, I think these are these are the most important topics at least to think about for the week ahead, and maybe looping all the way back to where we started, sadly, for any shippers that were hoping we could give them a surefire forecast on what's gonna happen on the U.S. trade warned terrace. It's basically the same message has been for several weeks. Let's try to stay tuned with a rumor mill coming out of uh Washington, D.C., because it's anybody's guess where this is gonna land, to be quite blunt.
SPEAKER_01Yeah, absolutely. And I think it's an incentive to keep listening to the show, Lars, because I think there's so many different variables, you know, until we get some clear picture. I think that, you know, I mean, you're doing a lot of the heavy lifting for most people, so uh in terms of looking at data, the analysis and bringing that perspective. So I think it's a a good time. If if there was a time, it's definitely now because uh there's so many other so many things happening. All right. Anything else to cover, Lars?
SPEAKER_02No, I mean maybe maybe just to round off in the same vein as we also talked about before, for shippers that are doing the wait and see game, keep in mind that the hard deadline for many would be that first week of October when a lot of Chinese manufacturing shut down. And if everybody plays wait and see, everybody can't get their goods produced uh in the second half of September, and everybody then certainly can't get all their cargo shipped at that second half of September either.
SPEAKER_01Yeah, that's that's that's a challenge. And I think that's something everyone has to bear in mind because again, you're running up against that hard stop. Well, I think it's been a great show, Lars. A lot of information, a lot of insights. I hope everyone enjoyed the show this week. Uh, Caroline will be back and better than ever next week. Uh but don't forget, after you listen to the show, rate us, review us, wherever you find it. Apple, Spotify, wherever you find that supply chain secret. So thanks for listening, everybody.
SPEAKER_02Thank you.