9 April 2024 (Lloyd's List) - THE US imported 2,145,341 teu in March, up 0.4% from February and 15.7% year on year, Descartes reported on Tuesday.

Comparisons to 2020-2023 levels are heavily skewed by pandemic effects. Comparisons to pre-Covid levels show that US imports are back to a normal growth trend.

According to data from Descartes, March imports were up 21% from the same month in 2019, 25% from March 2018 and 30% from March 2017.

‘Slow and steady increase’ driven by secular trends

“What I’m seeing is a regression of US imports back to their long-term trend,” said Jason Miller, a freight economist and professor of supply chain management at Michigan State University, referring to separate data on containerised imports from the US Census Bureau.

“From a strategic planning standpoint, it’s basically about taking the trend line from 2011-2019 and projecting it forward — and that’s where we’re at in 2024,” he said in an interview with Lloyd’s List.

Excluding the pandemic anomaly, US imports have shown “a slow and steady increase”, driven by secular economic trends, he explained.

These include population growth, the rise in single-family housing — “which is a key driver of US import activity” — and volume gains for the country’s largest wholesalers and retailers.

“The US is certainly a brighter spot this year for container operators than Europe,” Miller added. “Europe’s economy in general is not in as strong of a position as the US economy.”

Downside and upside scenarios

Asked how the rest of this year could play out for US imports, he said: “There’s much more of a chance of a downside negative shock than an upside positive shock, with energy prices being a key factor.”

Oil prices are around $90 per barrel. Military escalation in the Middle East could push pricing considerably higher.

“If we do have an inflationary shock from the energy market, it may keep the Fed from lowering interest rates, which would be a headwind for capital investments and single-family housing,” said Miller.

In terms of possible upside, he pointed to US manufacturing as the sector to watch.

“The biggest open question is: Do we start to see a rebound in manufacturing output? US manufacturers are major importers of containerised intermediate inputs. The US manufacturing sector has effectively been in a recession since the third quarter of 2022 and we just haven’t seen it bounce yet.”

Inventories and imports

Ocean transport demand was suppressed last year by inflated inventories — one the main reasons US imports are up sharply this year versus 2023. Inventories have now normalised.

The issue ahead is whether supply chain disruptions will convince importers to rethink inventory levels.

Historic disruptions during Covid have been followed by Panama Canal restrictions and Red Sea diversions. Tensions are still running high between the US and China, presidential candidate Donald Trump is promising major new China tariffs, and there is a looming threat of a dockworker strike at east and US Gulf coast ports.

One theory is that US importers will increase imports to build up safety stocks as insurance against disruptions.

Miller does not believe safety stocks will be a major factor for import volumes. He noted that safety stock levels are a function of average lead time, lead time volatility, average demand, and demand volatility.

Disruptions increase average lead time, but the safety stock formula uses the square root of that increase. Thus, if lead time rises from 30 to 40 days, the lead-time variable does not increase 33%, it increases 15% (the change in the square roots).

“So, for example, the adjustment of safety stocks required by the Red Sea situation is very minor,” said Miller.

“We’re in a situation where safety stocks may be a little bit higher than they were in 2019, but not as high as they were in 2021. The change in safety stocks just isn’t going to be enough to fundamentally change the dynamics in container shipping.”

Diversification, nearshoring and reshoring

The volume impact of supply chain diversification, nearshoring and reshoring is another topic of debate in container shipping. Here too, Miller does not see a significant effect on US import volumes.

Supply chain diversification primarily affects the origin of containerised goods, not overall volume, he said.

“We’re seeing some assembly shift to Mexico, but Mexico only has so much capacity, meaning that most of the supply chain diversification is just going to involve shifting production within Asia, which doesn’t really alter anything from a container volume standpoint.”

Even in the case of nearshoring to Mexico, final assembly in Mexico will rely on inputs transported from Asia. “Most of the components are going to have to be shipped from China, so it doesn’t have the effect on container shipping it might seem to have.”

The same goes for reshoring of production to the US, he argued.

“I am not convinced that reshoring will lead to a substantial decline in trade volume, because at the end of the day, China is the key source for intermediate manufacturing inputs.

“It will be much harder to decouple the intermediate input supply chain from China than to decouple the final assembly. And until the intermediate inputs get decoupled, you’re not going to see a dramatic decline in containerised trade, even if there is a substantial move toward reshoring.

“Short of China invading Taiwan, I just don’t see anything causing the type of decoupling that would be truly material and significant to the container shipping sector,” said Miller, who added that if China does invade Taiwan, “then all bets are off”.