The year 2020 was the year of COVID-19 and unpredictability in the global landscape. We saw a major shift from the consumption of services to the consumption of goods as a result of shelter-in-place orders around the globe and this was reflected within the global supply chain and freight markets.
The start of the year we saw U.S. importers adjusting to the 25% Section 301 tariffs that affected approximately 250 billion dollars’ worth of Chinese goods. These tariffs went into effect in March of 2018 and the import community had been trying to adapt to the new costs ever since – would importers absorb these costs or pass them along to the end buyers? In either case, we learned quickly that the impact of the tariffs would definitely squeeze margins. As a result, we saw supply chains try to shift production to Southeast Asia, the Indian subcontinent, and other parts of the world in order to get away from a single-source model out of China. But we also learned that it will take many years for a sustainable shift in production to happen, if at all.
When February hit we saw the 6-week shutdown of China which basically brought about the lowest level of imports into the United States. With virtually nothing being produced and shipped, the steamship companies were faced with the challenge of how to control the capacity and sailings into the U.S. Fortunately, the carriers were able to successfully control the supply by cancelling sailings and working within their respective alliances (Ocean Alliance, The Alliance, 2M) by sharing vessels and scaling down capacity. This was an unprecedented period, as traditionally rates would plummet during a lack of demand. This did not happen in 2020 and in fact, just the opposite took place. As the country reopened, the steamship lines skillfully controlled capacity and until the availability of space eventually became an issue. The spot market started to increase and we saw rates three to four times the contracted and fixed rates negotiated at contract season.
This trend continued going into Q3 and Q4, compounded by a huge demand in PPE goods, seasonal items, and inventory replenishment into the U.S. The record surge of imports into the country led to delays at the ports and trucker availability that is continuing as we finish off the year. Due to the large trade imbalance that exists, a lack of equipment in China is now an additional obstacle to overcome.
All of these factors in 2020 resulted in record profits for the majority of the carriers and a new discipline of capacity management that will be carried into 2021. We can already see a tight Q1 and, depending on what type of stimulus package is passed and how consumer and business confidence grows, a just as challenging year overall. Fortunately, NFI has boots on the ground in Asia and the flexibility of providing full end-to-end solutions through all of our lines of business. We are ready to take on 2021.
Joining NFI in 2017, Mike brings years of industry expertise to the organization and is in charge of NFI’s North American global business where he works to seamlessly provide end-to-end solutions for NFI customers.