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Sept.21, 2015

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4 THE JOURNAL OF COMMERCE Editor's Letter Chris Brooks RETAIL INVENTORIES ARE running high. China and other emerging econ- omies are struggling, and the global leader, the U.S., is battling to sustain more rapid growth after fi ve years of middling post-recession expansion. Stocks are fi rmly in correction mode, perhaps further dampening already- struggling consumer sentiment. And Europe is, well, Europe. It all adds up to the worst possi- ble scenario for global ocean carriers during what typically is their busiest, most crucial, time of the year. Yet, despite these negative factors, and amid questions about whether freight demand will be strong enough in the run-up to the holiday shopping period to generate a peak shipping season — and the higher rates that come with it — the latest signs point to a surprising answer: Yes, there will be a peak season, a little later than normal in the trans-Pacifi c, perhaps, and carriers could indeed reap the benefi ts of higher pricing. In some cases, they already are. Rates in the severely depressed Asia- Europe trade spiked nearly 30 percent in the first week of September, the second consecutive weekly increase, according to the Shanghai Container- ized Freight Index. But to understand just how depressed that market is, rates of $763 per TEU from Shang- hai to North Europe are running 32 percent below year-earlier levels, and Asia-Med pricing is lagging by an even more staggering 42 percent. They're sobering statistics that reveal how far carriers in the world's largest trade have to go to close the gap between cargo demand and shipping capacity that, as JOC Senior Editor Greg Knowler reports, only widens as an average of one new mega-vessel enters the trade on a weekly basis. The recent rate rally also is the product of carriers implementing a strategy not seen since 2010, coin- cidentally their most profitable in recent memory: matching, where they can, supply and demand. By con- sistently canceling — or blanking, in industry parlance — certain sailings, carriers have raised vessel utilization in the head-haul Asia-to-Europe trade to 90 percent in the last four months, after sinking to just 74 percent in March, according to London-based research and consulting fi rm Drewry. In the trans-Pacifi c trades, mean- while, carriers are announcing gen- eral rate increases for October. It's an indication that carriers believe the drawing down of high retail inven- tories will run its course this month, clearing the way for higher-value, hol- iday-related electronics and apparel products that typically fi ll ships from late September to early November. Still, ocean carriers are in a tenu- ous position. Maybe the stock market correction has run its course. Maybe the lower import prices that come with China's August devaluation of the yuan will stimulate eastbound trans-Pacific trade. Maybe histori- cally low fuel prices will convince consumers to spend. Maybe the seven-year low in U.S. unemploy- ment rates will do the same. And maybe ocean carriers will reverse the course they've taken during the last fi ve years by effectively manag- ing capacity, thereby sustaining rate levels that, along with cost-cutting efforts, staunch the deep losses that, as an industry, they've suffered. That's a lot of maybes, all of which reflect the market uncertainty, on sea as well as land. "Since September makes up the bulk of third-quarter volume and earnings, we will resist cutting estimates until we see and hear how next month is tracking," David Ross, who as managing direc- tor of the transportation and research group at Wall Street analyst Stifel makes his living by offering insights on market direction, said in an Aug. 24 note to investors. Who can blame him for hedging his bets? JOC The Journal of Commerce (USPS 279 – 060), ISSN 1530-7557, September 21, 2015, Volume 16, Issue No. 19. The Journal of Commerce is published bi-weekly except the last week in December (printed 26 times per year) by JOC Group Inc. 2 Penn Plaza East, 12th Floor, Newark, N.J. 07105. Subscription price: $344 a year. Periodicals postage paid at Newark, N.J., and additional mailing offi ces. © All rights reserved. No portion of this publication may be copied or reprinted without written permission from the publisher. POSTMASTER: Please send address changes to The Journal of Commerce, Subscription Services Department, 2 Penn Plaza East, Floor 12, Newark, N.J. 07105-2257. SEPTEMBER 21.2015 EXECUTIVE EDITOR, THE JOURNAL OF COMMERCE AND JOC EVENTS Chris Brooks 973.776.7818 MANAGING EDITOR Barbara Wyker 973.776.7817 EXECUTIVE EDITOR, JOC.COM Mark Szakonyi 202.872.1234 SENIOR EDITORS Joseph Bonney, Trans-Atlantic, East and Gulf Coast, Latin America 973.776.7809 William B. Cassidy, Trucking and Domestic Transportation 202.872.1228 Bill Mongelluzzo, Trans-Pacifi c 562.428.5999 Greg Knowler, Asia +852 3975 2647 ASSOCIATE EDITOR Reynolds Hutchins, Intermodal Rail and Government/Regulation 202.572.1487 EDITOR-AT-LARGE Peter T. Leach 212.755.0940 RESEARCH EDITOR Marsha Salisbury 973.776.7828 ASSISTANT WEB EDITOR Dustin Braden 973.776.8652 ECONOMIST Mario O. 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