Trans-Pacific Spot Rates Slip

The decline in trans-Pacific spot rates to the US East and West coasts shows that capacity remains adequate despite growing concern over tight space and the rolling of containers in favor of higher-paying cargo.

The rate from Shanghai to the US West Coast per FEU fell 3 percent from last week and 16.8 percent from one year ago to $1,495, while the rate to the East Coast was down 5.8 percent week to week and 7.1 percent year over year, according to the Shanghai Shipping Exchange’s SCFI.

The declines during the heart of the peak season occurred as several carriers pushed rate increases of $600 to $1,000 per FEU to take effect Friday, September 1. A similar pattern took place on the Asia-Europe spot market, indicating that although global container trade is set to grow at the fastest pace in six years, deployed tonnage remains adequate to handle demand.

 

The abrupt loss of Hanjin Shipping’s capacity and subsequent impact on ocean shipping rates appears to have run its course. At the same time last year, when Hanjin collapsed, trans-Pacific spot rates to the West Coast jumped 51.4 percent week to week to $1,746 per FEU, while rates to the East Coast increased 45 percent to $2,441.

Capacity already in service being enough to meet demand is unlikely to change in the short-term, as recent figures from industry analyst Alphaliner revealed that the idle container ship fleet has fallen to its lowest level in two years. The unemployment rate for ships now represents 1.8 percent of global container capacity, down from 2.3 percent on August 7.

Over the medium-term, there is still a good chance that capacity and demand converge, as carriers have refrained from ordering new tonnage, especially the larger ships of more than 15,000 TEU that can overwhelm the market.

After ordering nearly 2.5 million TEU in 2015, carriers ordered 205,697 TEU in 2016, according to IHS Markit order book data. Until CMA CGM’s order of nine 22,000-TEU ships in August, only 58,892 TEU had been ordered this year, with all orders for ships smaller than 2,999 TEU.


Shippers prep for Asia-Europe for trade volatility.

Shippers and forwarders, some already bruised following the rollout of new global container shipping alliances and subsequent delays in the trade between China and Europe, are preparing for more pain and disruption in the form of canceled sailings and even scrubbed services, as carriers scramble to mitigate a massive injection of capacity on the Asia-Europe trade over the next two years. 

The 23 percent jump in capacity forecast by industry analyst SeaIntel jeopardizes carriers’ improving fortunes; after six straight years of financial losses totaling billions of dollars, they’re set to end the year with a collective profit of $5 billion, according to London-based Drewry Shipping Consultants. 

Other than tightening capacity from in the eastbound Europe-to-China trade during the run-up to the launch of the new alliances in April and a peak-season surge in volumes that led to congestion at Chinese and European terminals, the trade has been relatively calm.