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.