Stop me if you heard this one. There was a country called the United States of America brought down to one knee by a pandemic, and one of the things people could do to make themselves feel better was buy stuff. You heard it? Well get ready to hear it again. At least a little.
During the time of stay-at-home orders and broad shutdowns, many people suffered. Restaurants, bars, hotels, airlines, the entertainment industry, you name it, suffered. If it was fun and where people wanted to go, it was shut down. The people involved in all those industries were punished by fate, and in some states still are.
Then something else happened that was impossible just thirty years ago. During the worst day, of the worst week, of the worst month, of our pandemic related shutdown, 85.2% of us kept working. In April 2020, the unemployment rate hit 14.8%. In February of 2020, the unemployment rate was already 3.5% so the actual increase comes out to be 11.3%. By August, the national unemployment rate was well below 10% sitting at 8.4%. America did its best to make working from home function until better days came. For the first time ever, advances in technology allowed it to happen. Added to that, the types of businesses considered ‘essential’ in some states were generous and the Fed gave a Red Bull injection to unemployment benefits. While it’s true many people agonized, and some still are in harder hit areas, the fact of the matter is many Americans still had, and have, money.
With money in our pockets and no experience related pleasures like restaurants, bars, sporting events, and vacations to spend it on, we turned to buying ‘things’. Import volume, especially imports from China, skyrocketed. North American ports, particularly Los Angeles and Long Beach (LA/LB), filled up with inbound containers. Since LA/LB takes in more (32%) import containers than any other port in the country, they ended up being the shining example of port congestion.
The reasons being:
too much cargo coming from Asia for LA/LB to handle,
labor shortages due to Covid-19,
shortages in China of empty containers to fill with stuff to send to us,
not enough empty chassis to go around in the USA,
and overloaded warehouses and storage facilities in the LA/LB port area.
The experts are now putting in writing the congestion should work itself out starting in March. It makes sense. Chinese New Year will take place in February slowing China outbound shipments for a couple of weeks, and the months of March through June are typically not brisk import months. Moreover, there really should not be any seasonal buying until later July. There lay the ingredients of the common thought congestion will be history by summer.
I am not buying it.
Why am I not signing on to the miracle of congestion salvation through the help of seasonal norms? Because things still are not normal. In addition, some of the key indicators seem to not support the one thing that will help the port congestion most, an import reduction of consequence.
Here I state my case.
Contract ocean rates are not forecast to stay put.
China to USA spot rates remain high, exceedingly high. Contract rates will start negotiating soon and are tied to spot rates. The word is importers are bracing for stiffly higher contract rates. If importers expected the import cargo to really diminish, they would be going to war with ocean carriers on rates, not turning paws up with hopes of not being completely eviscerated.
What do the purchasing Managers think?
The PMI Index (Purchasing Managers Index), while experiencing a month to month (Dec to Jan) decline of 2.98%, the composite PMI Index remains north of 50 at 58.7 for January 2021. That is not a dooms day indication from purchasing managers. As a matter of fact, before the PMI spike in 2020, you will have to go back to 2018 (October) to find a month with a higher PMI Index composite number. When the PMI Index composite drops another six points, I reserve the right to change my mind.
The check is in the mail.
More government money is also on the way. Wrong, right, or indifferent, the government will be writing checks to citizens again soon. While no one in high income levels will be getting the gift of getting their own money back, many citizens in lower income classifications will be getting a check. Want money to find its way back into the economy fast? Give it to people who do not normally have any. Let us face it, if you have a treasure chest full of cash in your checking account, you will not wait for a check from your Uncle Sam to go buy something. The stimulus money for citizens, when it gets here, should be circling back to the economy quickly, with some heading for more imported goods. If there is a second round of stimulus earmarked for infrastructure, it would be another round of cash looking for somewhere to go.
No matter where you go, there you are.
Two of the key fundamentals that highly influenced the import surge have not significantly changed yet. We are still staying home more, and many of us still have money. While there are varied degrees of mandated restrictions for each state, one thing is consistent, many people are being homebodies, even if by choice. The public could largely be conservative on buying experiences until it is clear the vaccines work as advertised, a large portion of the public has been vaccinated, and the vaccines are shown to be effective on the new strains that can threaten public health. So how is February 2021 different that July 2020? First, the January unemployment level fell to only 6.3%, and while we are closer to the light at the end of the tunnel, we are not here yet. If the fundamentals have not changed since the second half of 2020, why would I expect consumers to change their buying habits in the first half of 2021?
Time flies when you are having fun.
I did say there is typically a lull related to import container shipping February through June. If the lull comes as normal, everything I have written will be as wrong as wearing stripes with plaids. If I am right on continued elevated import volume, even if only until July 2021, it will lead us straight into the 3rd quarter seasonal buying. On top of so much pandemic related consumerism, it does not seem rational to expect a title wave of buying for the 2021 season. Even if seasonal buying is moderate, on top of an import surge that lingered, it could theoretically extend congestion, at least to some degree, until the fourth quarter of 2021.