Jul 25

Trans-Pacific Spot Rate Update 2016-7-25

joc.com

Container lines in the eastbound trans-Pacific this week were unable to hold on to their rate increases of last week, reflecting liners’ inability to pull out enough capacity to meet demand ahead of peak season.

The spot rate for shipping a 40-foot-equivalent unit from Shanghai to the East Coast declined 7 percent to $1,744. The spot rate to the West Coast dropped 9 percent to $1,296 per FEU.

That’s despite total slot capacity in the trans-Pacific this month being 1.6 percent less than in July 2015, according to the weekly report from industry analyst Alphaliner. The Ocean Three Alliance withdrew one Far East-U.S. West Coast string and one Far East-U.S. East Coast string. Also, the G6 Alliance announced it is merging two weekly trans-Pacific strings from Central China into one.

Ocean carriers are attempting to match vessel capacity with demand for merchandise imports from Asia, but demand simply isn’t increasing fast enough as the peak-shipping season approaches. Therefore, carriers are taking the unusual step of removing strings from service even as the peak season approaches.

The past month has been one of ups and down in the largest U.S. trade lane, according to the Shanghai Containerized Freight Index, as displayed on JOC.com’s Market Data Hub. Spot rates to the East Coast in late June jumped 19 percent in anticipation of a July 1 rate hike, but declined 3 percent the next week. The spot rate to the East Coast increased 8 percent last week, only to decline this week by 7 percent.

The same trend played out to the West Coast, only the swings were wilder. The spot rate surged 61 percent in late June, dropped 4 percent the next week, increased 22 percent last week and this week declined 9 percent.

Containerized imports from Asia have been growing modestly this year, although not enough to absorb the vessel capacity already in the trade. According to the website of the Pacific Maritime Association, containerized imports moving through all West Coast ports increased 2.8 percent in the first five months of 2016 from the same period last year. The West Coast accounts for 66.1 percent of U.S. imports, according to PIERS, a sister product of JOC.com within IHS Markit.

If past is precedent, supply and demand should be more balanced beginning in August and continuing through October. In recent years August has been the busiest month of the year for West Coast ports, with another bump occurring in October. East Coast vessels normally fill up in August and stay that way into October.

Unless space tightens and beneficial cargo owners get anxious because their cargo is being “rolled” to subsequent voyages, they are unwilling to pay general rate increases or peak-season surcharges to get their containers onto ships. If space tightens sufficiently, spot rates of $2,000 per 40-foot container or higher could be seen this fall.

While the current conditions in the eastbound Pacific are not robust, they are certainly much better than they were during the winter months when spot rates on the SCFI reached new lows of $750-$800 per FEU.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.

Jul 13

US imports forecast to rise slightly in second half

JOC.com

Laden U.S. containerized imports should slightly rise over the second half of 2016 compared with the same period in 2015 as retailers’ stocking for the back-to-school season provides a short-lived bump to container volumes before dipping and then building again in the late fall for the holiday shopping season, according to the monthly Global Port Tracker.

Inbound laden container traffic will increase by 0.5 percent year-over-year during the next six months, reflecting a return to normal trends after the 2014 and 2015 West Coast port crisis shook up normal import flows. The Global Port Tracker, which is compiled for the National Retail Federation by Hackett Associates, expects imports to rise 1.4 percent year-over-year this month before declining in August and September by 2 percent and 2.6 percent, respectively.

“Trade is holding on to a small margin of growth, but this growth comes in the face of some adverse statistics as well as positive ones,” Hackett said. “The good news is that retail sales have remained positive as the consumer continues to cautiously spend. The hope is that this spending will continue.”

The Global Port Tracker said laden import container volumes on a year-over-year basis will increase 4.4 percent in October and 2.8 percent in November. Imports of loaded containers grew 1.1 percent year-over-year in May. The May figure was up 12.8 percent from the prior month, the report said.

Year-over-year comparisons are difficult, however, because numbers in the first half of 2015 were affected by the slowdown at West Coast ports, as some container shipments were delayed before volumes increased once the slowdown ended, the NRF said.

In 2016, Global Port Tracker has been noticeably less bullish in its import projections than Mario Moreno, IHS Markit chief economist, who forecasts U.S. containerized imports this year will rise 5.7 percent, to 20.9 million TEUs, while exports will increase 1.3 percent, to 11.6 million TEUs. Indeed, the Port of Long Beach on Tuesday released actual laden import numbers for June, and the second-largest U.S. port reported an increase of 5.5 percent from June 2015.

The Pacific Maritime Association, which tracks all West Coast ports, reported that in the first five months of 2016, laden import container volume increased 2.8 percent compared with the same period in 2015. Global Port Tracker has total U.S. containerized imports increasing 1.5 percent compared with the first five months of 2015. This could indicate that West Coast ports this year are attracting back market share they lost last year to East Coast ports.

Laden import TEUs through West Coast ports increased by 2 percent in May, compared with the same month in 2015, to 939,858 TEUs, according to PIERS, a sister product of JOC.com within IHS Markit. The volume of laden container imports through East Coast ports fell by 2 percent to 755,404 TEUs and laden import traffic at Gulf ports fell by 13 percent year-over-year to 100,023 TEUs.

Contact Hugh R. Morley at Hugh.Morley@ihs.com and follow him on Twitter: @HughRMorley_JOC.

Jul 11

Seesawing spot rates a fact of life on the trans-Pacific

JOC.com

Spot rates in the eastbound trans-Pacific this week retreated modestly from the previous week, repeating an all-too-familiar trend in recent years of a general rate increase one week followed by rate deterioration in subsequent weeks.

The spot rate for shipping a 40-foot-equivalent unit from Shanghai to the East Coast was $1,727 per FEU, down 3 percent from last week, according to the Shanghai Containerized Freight Index, which is published on the JOC.com Market Data Hub. The rate last week had increased 19 percent from the previous week to $1,785.

The spot rate this week to the West Coast was $1,166 per FEU, down 4 percent from $1,209 last week. The rate last week to the West Coast had jumped 61 percent from the previous week because of a July 1 rate increase that a number of carriers had announced.

This up-and-down trend in the spot market rates has been a fact of life in the largest U.S. trade lane, and other east-west trades, since at least 2014. Due to global overcapacity, carriers have been unable to consistently maintain GRIs. Therefore, about once each month they announce large GRIs of $600 to $1,000 per FEU, although the rates they actually charge are usually half of the amount that was announced. Then the rates deteriorate in subsequent weeks until a new GRI is announced.

Recently, for example, carriers recorded a modest rate hike in early June to $1,685 per FEU to the East Coast. The spot rate then declined 2 percent, 7 percent and 2 percent in subsequent weeks before jumping higher with the July 1 GRI. The spot rate to the West Coast increased in early June to $852 per FEU, then declined 5 percent, 5 percent and 2 percent in subsequent weeks before spiking 61 percent to $1,209 with the July 1 GRI.

If there is any consolation for carriers, they should be able to keep the spot rate above $1,000 per FEU to the West Coast as the peak shipping season approaches. Industry analysts expect the trend in spot rates in late summer and fall to be upward, possibly spiking as high as $2,000 to the West Coast when capacity tightens in the busiest months this fall.

The story is much the same on the Asia-Europe trade lanes. Spot rates this week to North Europe gave back half of last week’s gains, and the spot rate to Southern Europe gave back 22 percent from the previous week, according to the SCFI.

This summer will mark a gradual upsizing of vessels in all-water services from Asia to the East Coast following the much-anticipated opening in late June of the third set of locks on the Panama Canal. The enlarged canal will initially be transited by vessels with capacities of up to about 10,000 twenty-foot-equivalent units, or twice the maximum size capable of transiting the older locks.

Carrier alliances announced that six services with vessels of 6,000 TEUs to 10,000 TEUs of capacity will be phased into the Panama Canal route this summer, according to industry analyst Alphaliner. However, since the services with Panamax vessels that had been transiting the older locks will be phased out, the net capacity increase on the all-water services will be marginal.

East Coast ports must still complete certain dredging and bridge-heightening projects over the next year or so before they are capable of deploying vessels of up to 13,000-TEU capacity via the Panama Canal. Also, they must address the congestion problems and logistical complexities of handling much large cargo surges from the bigger ships.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo

Jul 10

Challenging Start to VGM in China

JOC.com

Half of all the verified gross mass declarations of containerized exports being received in China by giant forwarderKuehne + Nagel are missing the required data as shippers grapple with the new regulation that came into effect on July 1.

The VGMs being submitted either via the forwarder’s online portal or in VGM forms contain incomplete information 50 percent of the time, such as not having the weight properly declared or missing a shipper signature, said Otto Schacht, executive vice president, global sea freight for Kuehne + Nagel International.

“That means for each single container, a Kuehne + Nagel operator must call up the shipper or vendor in China to ask them for the missing information otherwise we cannot process the data,” he told JOC.com.

The new VGM rule is an amendment to the International Maritime Organisation’s Safety of Life at Sea convention that requires shippers to verify the weight of every export container across the world. However, the IMO in May urged the maritime agencies around the world to exercise leniency in enforcing the rule. A regularly updated Q&A can be found here.

In the build up to the implementation date, container lines were pounding home the “no VGM, no load” message as concern mounted that compliance in many jurisdictions would be a problem. As the source of much of the world’s exports, China was high on the concern list, and rightly so as it turned out.

On the first sailing weekend after the rule went live on Friday, July 1, 30 percent of all export containers entering the port of Shanghai were missing VGMs, said Markus Johannsen, senior vice president of sea freight for the North Asia Pacific Region for Kuehne + Nagel. “And that was not incomplete data, the VGMs were completely missing,” he said.

No delays were reported as the various parties in the container supply chain worked out the problems in Shanghai, but following up the missing data — and the software  that Kuehne + Nagel created to process VGM data — was given as an explanation for the forwarder’s VGM fee of $12.75 per container for submission via its online portal and $25 for manual data entry.

This charge for handling the container weights has become a bone of contention among shippers who have been vocal in their opposition to the various VGM fees being charged by forwarders. The Hong Kong Shippers Council called on forwarders to withdraw the VGM charges in the run up to July 1 and this week the Global Shippers’ Forum Secretary General Chris Welsh said some carriers and other service providers were exploiting the introduction of the new VGM rules.

“Shippers worldwide support the safety goals of the container weighing requirements and are committed to fulfilling their regulatory requirements, but this should not be used by supply chain partners as an excuse to impose unjustified fees,” Welsh said.

Schacht said Kuehne + Nagel fully supported the SOLAS regulation because it is all about safety, which has to get an even higher priority in container transportation.

“But safety is not for free. If you buy a bicycle helmet it will cost you money. The whole industry now has to have far more accurate weight data, and as a forwarder we want to provide efficient solutions and not handle all this data manually,” he said.

“For the sake of efficiency we reprogrammed our global operating software for the VGM and Inttra provided a connection solution. We had to create the portal and programmed an app so people can key in the weight and name and the electronic signature via a mobile phone from a container station. All this resulted in extra cost.”

Johannsen said Kuehne + Nagel did not simply pass on data received from the shipper to the carrier. “We have provided the market with a stable solution that is working. But this is only the start and we manage the many exceptions,” he said.

The need to chase shippers for the correct data was also highlighted by Joerg Hoppe, DB Schenker director and head of ocean freight for North and Central China. He said last week that providing the VGM certification added an additional cost and time element to the shipping process for all parties.

Hoppe said that although 100 percent trade compliance was something customers have come to expect, it did not always come free. “A VGM processing fee has almost no impact on overall merchandise costing if broken down to line item level,” he said.

“We believe shippers should be, and in fact are already, far more concerned about early VGM submission deadlines negatively impacting their current production lead times. This then comes back full circle to the already described ‘late’ VGM submission with the freight forwarder being relied upon by shippers to fix things.”

In China, although some ports provide weighing services, much of the container weighing is being done by independent companies that are charging 50 Chinese yuan ($7.50) per twenty-foot-equivalent unit and 100 yuan per forty-foot-equivalent unit for the service. However, JOC.com has learned that cargo agents are being relied onto get the boxes weighed and they are not happy with the arrangement.

Contact Greg Knowler at greg.knowler@ihs.com and follow him on Twitter: @greg_knowler.

Jun 29

VGM Submission Fee by Forwarder: Is there a justifiable cost?

JOC.com  June 28, 2016

The verified gross mass (VGM) processing fee being imposed by freight forwarders has come under fire from the Hong Kong Shippers’ Council that has called on its members to reject what it regards as an unjustified charge.

With just days to go before the 1 July implementation of the International Maritime Organization’s Safety of Life at Sea (SOLAS) rule requiring shippers to verify the weight of all their export containers, shippers are beginning to gain a clearer picture of what VGM compliance will cost and not everyone is happy.

“There is so little extra work that freight forwarders must perform so there is no justification at all for them to produce a new charge,” said Sunny Ho, executive director at the Hong Kong Shippers’ Council.

The charges vary. Kuehne + Nagel said shippers that submit the VGM verifications via the forwarder’s portal will be charged USD12.75 for each shipment, while submission by other means, such as in an e-mail, will accrue a USD25 charge.

DB Schenker will charge a VGM processing fee of USD25 per container for full container load (FCL) shipments and USD15 per less than container load (LCL) shipment. Ho said figures he had seen ranged from USD6 per LCL shipments and up to USD25 per FCL.
“Forwarders are taking advantage of the unclear situation to increase revenue. The shipper must provide the VGM and the lines and terminals do not have to check that it is accurate, so there is no risk to the forwarders. If a container is checked and its weight is found to be inaccurate it is the shipper who will pay when the container cannot be loaded.”

Under the SOLAS rule, there is no obligation for carriers or terminals to verify that the VGM provided by the shipper is accurate, but maritime agencies will conduct random checks on containers and if the declared weight is outside the established tolerance in that jurisdiction, the box will not be loaded on a vessel.

But forwarders were quick to defend their need to levy the VGM container processing fee.

Joerg Hoppe, director and head of ocean freight for North and Central China, said providing the VGM certification added an additional cost and time element to the shipping process for all parties. He compared the rule to the security regulations such as the 24-hour advanced manifest system for US cargo and Europe’s entry summary declaration.

“It’s similar to AMS, ENS or AFR regulations for example as it requires additional information to be formally collected, checked, processed, stored and passed on timely in a specific format to other parties in the supply chain,” he told IHS Fairplay.

Hoppe said 100% trade compliance was something customers had come to expect, but unfortunately it did not always come free.

“A VGM processing fee has almost no impact on overall merchandise costing if broken down to line item level. We believe shippers should be, and in fact are already, far more concerned about early VGM submission deadlines negatively impacting their current production lead times. This then comes back full circle to the already described ‘late’ VGM submission with the freight forwarder being relied upon by shippers to fix things,” he said.

The Shanghai-based DB Schenker executive said there was also a considerable, and as yet unexplored, financial risk and legal angle to the SOLAS rule.

“It starts with the cost of simple exception management in cases of VGM discrepancies or the inevitable late submission of VGM’s, such as making sure containers don’t roll, amending manifests, customs declarations,” Hoppe said.

“And it ends with the VGM further firming up the chain of legal responsibility and custody in case of accidents involving containers. After all, NVOCCs, such as DB Schenker, are legally acting as shipper of record having to provide a correct VGM as shippers to the carriers.”

A Hong Kong-based forwarder with offices across China said for almost every export shipment he handled, his company consolidated the cargo and was indicated as the shipper on the bill of lading.

“That means we are responsible for ensuring the container has a VGM and must get that data to the carriers and terminals. We must combine the weight of cargo from, say, 10 different customers and add that to the tare. That is an additional administrative process that we do not need to care about today,” he said.

“At the end of this week that will all change and it will become a burden for us. Not a huge one, I admit, but it adds to our workload and for that I believe a small charge per container is completely justified.”

Contact Greg Knowler at greg.knowler@ihs.com and follow him on Twitter: @greg_knowler.

Jun 22

Peak Season Surcharge Postponement Update 6-22-16

| Jun 21, 2016 2:21PM EDT  joc.com

In an exercise that is likely to be repeated in the weeks ahead by other container lines, CMA CGM notified its customers that a previously announced peak-season surcharge in the eastbound trans-Pacific that was scheduled to take effect on July 1 has been postponed until July 15.

The customer advisory listed the proposed peak-season surcharges as $360 per 20-foot-equivalent unit, $400 per 40-foot-equivalent unit, $450 per 40-foot high cube, $450 per 40-foot refrigerated container, $510 per 45-foot container and $640 per 53-foot container. The surcharge would apply to most origin points in Asia to all U.S. ports.

Hapag-Lloyd announced earlier this month that it was delaying implementation of its proposed peak-season surcharges from June 15 to July 1 on routes from East Asia to the U.S. and Canada. Hapag-Lloyd’s customer advisory listed the proposed surcharges as $320 per TEU and $400 per FEU.

Carriers must provide at least 30-days advance notice for rate increases. As the U.S. import trade from Asia begins to transition to the busy summer-fall peak season, carriers usually test the waters with an early-summer surcharge announcement. In recent years, with so much over-capacity in the trans-Pacific, the early peak-season surcharges have not stuck.

Carriers will then postpone the early surcharges and announce new dates 30-days out. Eventually, when supply-demand is more in balance, carriers begin to capture a percentage of the surcharge, but usually not the full increase. However, as the season progresses and vessels become over-booked, carriers are usually able to retain a higher percentage of the surcharge, especially from smaller importers and NVOs.

Trans-Pacific carriers are working to make rate increases stick by cutting capacity. China Cosco Shipping, the Ocean Three and the G6 Alliance have all cut services, resulting in a 1 percent drop in trans-Pacific capacity equal to 16,000 TEUs, according to Alphaliner.

In recent years, August has been the busiest month of the year for West Coast ports, with another cargo surge coming in October. September is usually busy for East Coast ports, although volumes there tend to be more consistent during the summer and fall months because of capacity constraints at the Panama Canal.

This summer will usher in a new capacity environment with the opening at the end of this week of the third set of locks at the canal. Vessel sizes initially will probably double from about 4,500 TEUs today to ships of 8,000 TEUs to 10,000 TEUs. However, it will take some weeks for carriers to test the new locks and phase in their rotations.

Total U.S. import growth in 2016 is still very much in question, with the Global Port Tracker predicting minimal growth of about 1 percent from 2015. However, IHS Senior Economist Mario Moreno projects 5.7 percent growth.
Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 21

Container lines back using current weighing process to meet SOLAS

| Jun 20, 2016 2:57PM EDT  JOC.com

U.S. exporters finally achieved the carrier uniformity they were seeking on the SOLAS container weighing requirement when 19 major container serving the U.S. gave their support for the use of on-terminal scales to comply with the international rule that takes effect on July 1.

The Ocean Carrier Equipment Management Association, which represents 19 of the largest container lines in the U.S. trades, stated that it “strongly supports the use of on-terminal scales to obtain the verified gross mass of containers, as required by the Convention on Safety of Life at Sea.”

The OCEMA announcement is significant because it should allay the concerns of exporters that each line would attempt to impose its own requirements on customers for submitting a VGM. Furthermore, since U.S. ports and terminal operators for years have been using on-terminal truck scales to weigh containers in order to meet Occupational Safety and Health Administration safety requirements, exporters can feel comfortable in knowing that there will be no process changes or delays in the loading of their containerized shipments onto vessels.

“While this is expected to alleviate much of the confusion surrounding VGM and simplify the process for most stakeholders, there may be operational constraints that require different processes for determining and transmitting VGM,” OCEMA said in a statement. “In cases where the Terminal Weighing Approach is not feasible, OCEMA will continue to evaluate ways to achieve VGM compliance.”

Under the International Maritime Organization’s Safety of Life at Sea amendment, passed in May 2014, container lines are obliged to only load containers with a VGM onto a ship. The rule is aimed at cracking down on misdeclared container weights, which have contributed to maritime accidents.

Agricultural exporters meeting in Long Beach at the weekend, three days before the OCEMA terminal-weighing approach was announced, had expressed concerns about a lack of uniformity among the almost two-dozen major container lines in the U.S. trades.

Peter Friedmann, executive director of the Agriculture Transportation Coalition, said as recently as last week AgTCmember companies had been receiving disparate messages from individual carriers as to whether the use of terminal scales was acceptable, or whether the exporters had to sign off on the weights that had been provided by the ports or terminal operators to the shipping lines at the time of loading onto the vessel.

The South Carolina Ports Authority, which operates the marine terminals in Charleston, took the lead among port authorities back in February when Jim Newsome, president and chief executive officer, said Charleston would continue to weigh the combination truck-container units at its in-gates, as it had been doing for the past 25 years, and would provide the weight to the shipping line for use in calculating the VGM.

Newsome told the AgTC conference that exporters at the Port of Charleston will not have to sign each VGM separately. “We will file a tariff rule. The shipper using our port authorizes us to submit the VGM,” Newsome said.

Charleston is one of a half-dozen South Atlantic and Gulf Coast ports that have filed for permission from the Federal Maritime Commission to form a discussion agreement through which they will develop a uniform approach on the VGM requirements, further assuring exporters that processes will be uniform from port to port in the region.

The OCEMA announcement that carriers will accept on-terminal weighing as fulfilling the International Maritime Organization’s SOLAS requirement is important because the regulation specifically states that the shipper is responsible for assuring that the VGM is submitted to the ocean carrier. However, thanks to an “equivalency”declaration by the U.S. Coast Guard, which states that there are a variety of paths to comply with SOLAS, it became clear that a third party could submit the VGM on behalf of the exporter. The Coast Guard is the U.S. enforcement agency for the SOLAS regulation.

Ocean carrier executives realize that in their industry, where company headquarters are scattered throughout Asia and North America, mixed messages were being delivered to U.S. exporters. Richard Craig, CEO of MOL America, said that in the U.S. trades carriers were working with OCEMA on developing a common approach. The process took some time, but exporters should now be assured that carriers all support the OCEMA terminal weighing approach. “We’re in full agreement here,” Craig said.

George Goldman, president of Zim Integrated Shipping Services America, said the common approach of carriers on the terminal-weighing process should also relieve exporters of the fear that carriers would each go their own way on SOLAS in order to seek a competitive advantage. “It is not in our best interest, or yours, to go off on a competitive binge,” Goldman said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 09

OOCL Adjusting Capacity for 2016 Peak Season

Trans-Pacific carriers are beginning to phase in their new deployments for the peak-shipping season in an attempt to right-size capacity in the largest U.S. trade lane.

Orient Overseas Container Line announced this week that it will suspend for six weeks the Central China service that it operates as part of the G6 Alliance, although the net result of the move will be an increase in capacity because the CC1 service will be replaced with the CC2 service, which features larger ships.

Noel Hacegaba, chief commercial officer at the Port of Long Beach, confirmed that the CC1 service, with vessels having capacities of about 5,000 twenty-foot-equivalent units, is being temporarily suspended. Hacegaba said the CC2 service, which also links Central China and South Korea with the Southern California port complex and Oakland, is returning after having been laid up during the winter months. The CC2 will have vessels with capacities of about 8,000 TEUs, he said.

Since OOCL announced that the CC1 is being suspended for six weeks, the intent is apparently to bring the service back in August. The busiest months of the trans-Pacific shipping season are from August to October, with holiday-season merchandise driving growing cargo volumes.

By temporarily suspending the CC1 service, the G6 carriers are attempting to keep rates from falling while the trade awaits the peak-season buildup. Service contract rates this year were negotiated down to record lows. Spot market rates bottomed out earlier this year and have increased the past two weeks, although they remain below historical levels, as displayed on theJOC.com Market Data Hub.

Trans-Pacific carriers also face the quandary of what to do with the increasing number of mega-ships they have on hand as newly-built vessels with capacities of up to 20,000 TEUs enter their global fleets for use in the Asia-Europe trade. Those mega-ships bump vessels of 8,000- to 10,000-TEU capacity to other trades, such as the trans-Pacific.The good news for carriers, if they can fill the ships, is that 8,000-TEU vessels have lower per-unit carrying costs than the 5,000-TEU ships they are replacing.

The CC1 service had been calling at Busan and Kwangyang, South Korea; Shanghai and Qingdao, China; Los Angeles-Long Beach and Oakland.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 08

6 Month Import Outlook – June 2016

Monthly reports on U.S. containerized imports are painting an uneven picture of what is occurring this year in the merchandise trade from Asia, but retailers anticipate a “significant uptick” in imports this fall peak season, according to the Global Port Tracker.

The monthly publication of the National Retail Federation and Hackett Associates said containerized imports at the major U.S. gateways in April increased 9.1 percent from March, but were down 4.6 percent from April 2015.

“The unusual patterns seen last year in the aftermath of the West Coast ports slowdown are continuing to make valid year-over-year comparisons difficult,” said Jonathan Gold, NRF vice president for supply chain and Customs policy. “Retailers are balancing imports with existing inventories, but consumers can expect to see plenty of merchandise on the shelves for both back-to-school and the holidays.”

Global Port Tracker projects an up-and-down pattern for imports in the next six months. The year-over-year projection for May is a decline of 4.2 percent. Imports in June are projected to be down 1.9 percent, July up 0.2 percent, August down 3 percent, September down 3.5 percent and October up 3.4 percent compared to the same months last year. Global Port Tracker said containerized imports in the first half of 2016 will be only 0.3 percent higher than during the first half of 2015.

The Pacific Maritime Association, which tracks loaded containers moving through the West Coast, has recorded higher volumes than Global Port Tracker. According to the PMA website, containerized imports from January through April were 4.1 percent higher than during the first four months of 2015.

Also, IHS Economist Mario Moreno is more bullish on U.S. containerized imports than is Global Port Tracker. Moreno said U.S. imports in the first quarter increased 7.8 percent from the first quarter of 2015, and he projects that imports for calendar year 2016 will be up 7 percent from last year. Ben Hackett, founder of Hackett Associates, projects flat to maybe 1 percent growth in U.S. imports in 2016.

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“Inventories remain very high, pointing to an overstocked situation that will depress the volume of imports in the coming peak season. Unless inventories drop through further increased consumer spending, import growth will remain sparse,” Hackett said.

Despite the uneven projections for the rest of the year, nothing seems to be helping ocean carriers achieve compensatory rates. The annual service contracts that carriers sign with their steady customers were a disaster this year, averaging about $800 per 40-foot container to the West Coast and around $1,500 to $1,600 per FEU to the East Coast.

Spot rates reported on the Shanghai Containerized Freight Index seem to have bottomed out, and are beginning to increase gradually as cargo volumes build toward the peak fall months. The spot rates last week were $852 per FEU to the West Coast, up 8 percent from the previous week, and $1,685 to the East Coast, up 4 percent from the previous week, as displayed on the JOC.com Market Data Hub. Nevertheless, those rates are far below the spot rates that are normally in effect this time  of year.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihs.com and follow him on Twitter: @billmongelluzzo.

Jun 06

Ocean Alliances Guide

A Guide to Ocean Alliances

The airlines you fly with organize themselves in alliances, and so do ocean carriers. Instead of cooperating to move passengers, however, ocean carriers cooperate to move freight.

The four largest ocean alliances move roughly 90% of ocean freight. Do you know how they work? This post tells you how ocean alliances operate and which carriers are in which alliance.

How do ocean alliances operate?

The logic of ocean alliances is similar to the logic of airline alliances, and it goes something like this: Major companies require frequent and predictable transit times.Ocean carriers have a hard time offering this service because ship sizes have gotten too large: Every carrier has been building larger and fewer ships. That’s why they form alliances, which means that a carrier like Maersk can use the space on the vessels of MSC. Under these vessel-sharing schemes, carriers can offer more service without having to buy more vessels.

Here’s how the ocean network can be designed to guarantee regular port service: Let’s say that you want weekly service between Busan and Rotterdam, with various port calls in between. Most carriers run vessels at 18 knots an hour on this tradelane, and one-way transit time is about 5 weeks. In other words, it takes a vessel 10 weeks to loop Busan and Rotterdam. Instead of dedicating 10 vessels to this lane, a carrier can rely also on the vessels of others. So alliances help carriers by letting them sell weekly services while owning fewer vessels.

That’s how it works in principle, anyway; everything is messier in practice. Alliances sometimes require vessels to call on multiple terminals within a single port, making it take longer to unload. Here’s a separate issue: Alliance discussions are supposed to be strictly limited to the coordination of operations, never of sales. But price movements have been suspicious enough of to warrant dawn raids of carrier offices by European Union investigators. Consider that both CKYHE and Ocean 3 have systematically scaled back their weekly departures, citing lower demand. This could be seen as coordination to reduce supply, though we have to mention that national regulators have more recently found that there’s no evidence of price fixing among the biggest carriers.

Alliances can breed strange partnerships. For example, the two largest ocean carriers, Maersk and MSC, have formed an alliance called the 2M. Maersk is rated the highest in terms of service reliability; its average on-time performance recently hit 82%. On the other hand, its partner MSC consistently ranks among the lowest carriers in terms of service reliability. Shippers can suddenly buy “Maersk Line reliability at MSC prices,” or vice versa.

Here are the most important things to know if you ship goods: First, you may need to contract across alliances, not carriers, to manage risk. Because carriers share vessels, shipping with two different carriers might not guarantee that you’re shipping on two different vessels. Second, you may have access to greater geographic coverage through alliances than you thought. And third, you may be able to arrange for additional sailings from your carrier because you have access to other vessels within the alliance.

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What are the major ocean alliances?

There are four major alliances, of which only one has a romantic name. We highly recommend reading our piece introducing the major ocean carriers to understand more about each of these companies.

2M: Maersk and MSC

Maersk and MSC have a combined capacity of about 5.7 million TEUs, and that’s about 28% of the overall market share in container capacity. As we stated above, Maersk consistently offers among the highest service reliability, while MSC offers among the lowest. 2M is particularly dominant on the Transatlantic and Europe to Asia routes. It’s weaker on the Transpacific route.

G6: NYK Line, Hapag-Lloyd, OOCL, APL, HMM, MOL

These six carriers have a capacity of about 3.5 million TEUs and a combined market share of 17%. G6 is a player in each of the four major trade lanes, and is strongest especially on the Transatlantic and Transpacific routes.

CKYHE: COSCO, K Line, Yang Ming, Hanjin, Evergreen

The five Asia-based carriers have a capacity of about 3.3 million TEUs and a combined market share of 16.4%. CKYHE is strongest in the Transpacific and Asia to Europe routes, while being a very small player in the Transatlantic route.

Ocean 3: CMA CGM, United Arab Shipping, China Shipping

These three carriers have a capacity of about 3 million TEUs. Their combined market share of container capacity is 14.7%. Ocean 3 is stronger in the Asia to Europe and Europe to Asia routes. It’s weakest in the Transatlantic route.

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(Market shares of major trade lanes in graphic form. Insights via Drewry Shipping Consultants.)

Not every alliance covers every major trade route. For example, 2M is largely entirely absent from the Indian subcontinent.

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These alliances are pragmatic arrangements, which means that their compositions change every few years. One of the most significant developments in this industry was the proposed alliance between the three largest carriers: Maersk, MSC, and CMA CGM. This new alliance would have been called P3, and together they would havecontrolled 37% of the overall market. The Chinese Ministry of Commerce scrutinized the deal, found it unacceptable that P3 would control 47% of the Asia to Europe lane, and rejected the alliance. CMA CGM promptly left to assemble the new Ocean 3.

Don’t expect these arrangements to stay stable for long. In general, it’s been a time for consolidations in the industry, as carriers are being acquired or merged. Look for developments as CMA CGM buys APL and when COSCO and China Shipping merge.

Source:  Dan Wang