State of Freight

Chinese manufacturing orders decline by 20-30%, according to shippers, as consumers pull back on buying goods

Key Points
  • Chinese manufacturing orders are down by as much as 30% for some logistics companies as consumers shift spending to services.
  • A DHL executive described it as a tipping point for the "ship at any cost" economy that has recently dominated in the U.S. amid high consumer demand.
  • Vessel volumes continue to grow at U.S. East Coast and Gulf Coast ports including Savannah and Houston, according to the CNBC Supply Chain Heat Map, as labor talks on the West Coast threaten to cause more supply chain issues.
Labors work at a factory's workshop in Huaying, Sichuan province of China.
Getty Images

Chinese manufacturing orders are reportedly down by as much as 20-30%, according to logistics sources responsible for moving the finished products from Chinese manufacturing plants to the Chinese ports.

"As consumers move from purchasing stuff to buying services, importers continue to work on balancing order flow with sales expectations," said Alan Baer, CEO of OL USA. "Some industries are forecasting purchase order reductions of 20 to 30 percent, while others see no interruptions in their order flow. Overall, the risk appears to be to the downside. The decrease appears tied to economic uncertainty and not the migration of operations out of China."

It is important to note even with this decrease in orders, the number of orders is still above pre-pandemic levels.

This order decrease will have no impact on the current container volumes leaving China bound for the United States.

"Orders are now fairly normal after the lock-down," said Goetz Alebrand, head of Ocean Freight Americas, DHL Global Forwarding. "Some raw materials are missing for production and we also see more caution among some groups of importers in placing bookings. We see this as most likely signaling a tipping point where the U.S. economy is moving from 'ship at any cost' to 'ship at a cost that our inventory can accommodate.' ... Shipping volumes are not falling from a cliff but the ultra-high growth rates we have seen in recent times are moderating," he added. 

Alebrand said there were some manufacturing shifts away from China that started under the Trump administration, with Vietnam and India among the countries that are benefiting from a growing share, but China remains the dominant sourcing locale for many products imported to the U.S.

One question that DHL Global Forwarding Americas is watching closely is whether Latin American countries will benefit from the shift.

"Any meaningful change will not happen overnight," he said.

Alex Charvalias, Supply Chain In-Transit Visibility Lead at MarineTraffic, tells CNBC that Ningbo continues to be a hot spot.

"It's a worsening situation at Ningbo with almost half a million TEU capacity stuck waiting for a berth, indicates turnaround times will only get worse in the next weeks," Charvalias said. "On the U.S. side, Savannah is seeing its worst days with an average waiting time of 8 days before berthing. No signs of relief there as well with four times the TEU capacity waiting outside the port, compared to the total TEU capacity the port is able to serve at any point of time."

Shanghai is still in various forms of lockdown so the expected surge of containers of finished products has slid further down the calendar. Once Shanghai fully reopens, the surge of containers will take six to eight weeks to arrive on the East Coast.

Container crush

Vessel volumes continue to grow along the U.S. Gulf Coast and East Coast as logistics managers try to avoid the West Coast congestion and fears of a West Coast port labor strike as the International Longshore and Warehouse Union and Pacific Maritime Association continue to negotiate.

"It's most definitely a tale of two coastlines in the U.S.," said Adam Compain, senior vice president of Supply Chain Insights, project44. "Carriers bulked up their service network on all water routes from China to the U.S. East Coast in a bid to get closer to the market and avoid congestion in Los Angeles/Long Beach and on inland multimodal links. But the increase from 19 vessel services per month in 2020 to almost 30 per month now is still causing serious challenges for ports on the East Coast,."

Even with the increase in vessels, the import container wait time out of the Port of Houston is the shortest compared to all the ports monitored by the U.S. Supply Chain Heat Map this week. During January through March, containers were up 22%. Year-to-date (May), containers overall were up 20%.

"While the number of container vessel arrivals at Port of Houston and Port of Savannah continues to increase, this will likely add to the existing ship counts at anchorage and can cause overextended vessel wait times," said Mirko Woitzik, director of intelligence solutions at Everstream Analytics. "The Port of Savannah is most noteworthy, with 108 planned vessels arriving over the next two weeks. Looking back, the average number of container arrivals at the port stood at 35 a week since January 2022. We can expect delays in Savannah."

In addition to the container crush on the Gulf and East Coast, the West Coast ports continue to see an increase in vessel calls. The Port of Los Angeles in anticipation of this increase has been trying to clear out the containers for more efficient processing. But Gene Seroka, executive director of the Port of Los Angeles, has warned the rail situation is not improving with containers bound for the rails continuing to pile up.

"Rail operations continue to be our biggest and current challenge," said Seroka. "We have more than 29,000 containers on the ground right now in Los Angeles with 15,000 of those aging nine days or longer. In more normal times during the same time frame, we would have 9,000 containers on the ground and none over nine and a half days."

Freight cost factors

Pervinder Johar, CEO of Blume Global, tells CNBC, "The two major unknowns for potential freight rate declines will be whether congestion will return resulting from possible work actions as the ILWU and PMA negotiate a new contract in the USWC and whether ocean carriers will exhibit the same capacity control disciplines that we saw in the early days of the pandemic in 2020."

The capacity controls Johar is referring to are the large number of canceled sailings made by the ocean carriers. It has been argued by many in the logistics community that the ocean carriers reduced the number of sailings too much and created an artificial shortage of vessels and containers.

By eliminating the sailings, the amount of available space for a container was decreased, which drove up the price an importer had to pay to get their container on a vessel. The canceled sailings also impacted the number of empty containers and the locations in which they were available. This also increased the price of the container itself. These additional charges were passed on from the shipper to the consumer fueling inflation.

Federal Maritime Commission chairman Dan Maffei told CNBC that the canceled sailings practices can be reviewed in part of the new Ocean Reform Act which was signed by President Joe Biden last week.

Europe labor talks

The labor strife at the five ports in Germany continues.

Andreas Braun, Ocean Product Director EMEA for Crane Worldwide Logistics, said new talks are planned by the unions and the port for the June 21. "That does not mean a short warning strike would come before to support the union's negotiations like we saw the last time. In Antwerp, the 24-hour general public strike on Monday will not make the situation any better," Braun said.

Peter Sand, chief analyst at Xeneta added, "It's too early to see if ships en route would omit calling 'North Germany,' we'll have to see. What is more worrying is that containers end up in the wrong place – and local feeder networks can't work magic either bringing the boxes into the congested ports."

In addition to the threat of a strike at the German, the U.K. will have a rail strike this week.

"This strike will most likely impact passengers, but surely also cargo moved on the railways," explained Sand. "Some carriers are shying away from offering long-term contracts with the destination being the UK," he added.

A British Union, the Transport Salaried Staffs' Association (TSSA) has warned of a "summer of discontent" as they dispute pay, working conditions, and job security.

The CNBC Supply Chain Heat Map data providers are artificial intelligence and predictive analytics company Everstream Analytics; global freight booking platform Freightos, creator of the Freightos Baltic Dry Index; logistics provider OL USA; supply chain intelligence platform FreightWaves; supply chain platform Blume Global; third-party logistics provider Orient Star Group; marine analytics firm MarineTraffic; maritime visibility data company Project44; maritime transport data company MDS Transmodal UK; ocean and air freight benchmarking analytics firm Xeneta; leading provider of research and analysis Sea-Intelligence ApS; Crane Worldwide Logistics; and air, DHL Global Forwarding, and freight logistics provider Seko Logistics.