Aug 31

Hanjin Files for Receivership

From: www.joc.com   Xiaolin Zeng, east Asia correspondent | Aug 31, 2016 12:43AM EDT

Hanjin Shipping has decided to file for court protection after losing the support of its banks in South Korea, sending shockwaves through the shipping and financial world.

The writing was on the wall after the country’s largest shipping line had trading of its stocks suspended on the Korea Exchange yesterday after a liquidity plan submitted to Korea Development Bank on Aug. 26 was rejected.

The KDB felt that the plan, which involved cash injections of up to 500 billion South Korean won, was insufficient to solve the liquidity shortfall facing Hanjin Shipping, which had already raised more than 1.7 trillion South Korean won since former chairwoman Choi Eun-young handed over the reins to her brother-in-law, Korean Air Lines chairman Cho Yang-ho.

The Financial Services Commission’s earlier assessment was that Hanjin Shipping would lack 1.2 trillion won over the next two years. Hanjin Shipping had been in the red for four of the last five years, dealing a blow to its equity even as it soldiered to raise funds.

While Hanjin Shipping has yet to issue any official confirmation of its application for receivership, the FSC has already issued a statement to the same effect. The latter statement stated that at a presentation yesterday, Hanjin Shipping’s creditor banks decided that they could not accept the liquidity plan.

Considering the impact on the economy, the Seoul Central District Court is expected to approve Hanjin Shipping’s receivership application.

The impact on the liner shipping industry is expected to be significant and will affect Hanjin Shipping’s CKYHE Alliance partners, its future THE Alliance partners, slot sharing with other carriers, its charter contractors and countless shippers with cargo moving on major trades on its 98-ship fleet.

In the meantime, Hanjin Shipping’s debt repayments are expected to be stayed and creditors would be precluded from seizing the company’s assets. Once the receivership application is granted, Hanjin Shipping would continue rehabilitation procedures under the direction of the court and KDB, its main creditor.

The company could implement layoffs and asset sales while its banks reschedule loan repayments. Hanjin Shipping on Monday said it had made significant progress in its negotiations to lower charter costs and delay loan repayments to foreign banks. The company’s counterparties include Seaspan, Doun Kisen, Ciner Ship Management, HSH Nordbank, Credit Agricole and Commerzbank.

In a manner similar to Pan Ocean, which was in receivership from June 2013 to early 2015, Hanjin Shipping could sell vessels that are not part of its core business of container shipping, in addition to terminals in South Korea and elsewhere.

Cash injections from Hanjin Shipping’s banks are unlikely as KDB and other South Korean banks have been massively burdened by the downturn in the shipping and shipbuilding industries. There also will not be any government bailouts, although debt-for-equity swaps could be possible, as seen with Pan Ocean and Korea Line Corporation. If debt-for-equity swaps are executed, the Hanjin Group could lose control of its shipping subsidiary and a new management team is likely to be appointed.

The FSC, South Korea’s financial watchdog, has moved to mitigate the impact of Hanjin Shipping’s situation on the latter’s associated companies, banks and investors.

The FSC said: “While Hanjin Shipping will be applying for receivership soon, the restructuring efforts that the company undertook in the meantime should limit the impact on the financial market.  Firstly, although Hanjin Shipping dos not carry heavy weight on the stock market, the company’s stock price has already adjusted downwards since the start of the year. Furthermore, the credit rating of Hanjin Shipping and Korean Air Lines has been adjusted to reflect the negative market conditions, and this should mitigate the impact on the corporate bond market .”

On the other hand, the FSC acknowledged that a significant proportion of Hanjin Shipping’s bank debts may become unrecoverable, and to this end, the company’s banks have been making provisions.

“Following Hanjin Shipping’s filing for receivership, we have been assessing the total possible amounts that the banks can absorb,” said FSC.

Aug 10

Space Concerns Arising in the Trans-Pacific Eastbound Route

LONG BEACH, California — U.S. importers, anxious because vessels in Asia are starting to fill up, are working to secure peak season space on the trans-Pacific, even though spot rates this week actually dipped slightly.

Beneficial cargo owners are concerned that a brief uptick in rolled cargo that affected non-vessel-operating common carriers in recent weeks could spread to their contracted shipments if vessels are overbooked later this month.

About a quarter of the 20 U.S. importers informally surveyed by JOC.com report an increase in rolled cargo over the last three to four weeks. Those who have been affected note the increase in contracted cargo delayed from loading in favor of more profitable spot freight has been minimal. Shippers expect further cuts to capacity as carriers, sore from a brutal trans-Pacific contract season, work to boost spot rates as shippers stock up for the holiday shopping season.

“We have experienced some intermittent rolling of cargo in the last three to four weeks, nothing too severe — one or two bookings per week, tops,” said an importer whose home decor freight headed to Long Beach was rolled in Ningbo and Qingdao. “We provide a rolling eight to nine-week window for a forecast, so that has helped us.”

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Other shippers, such as a major apparel importer, haven’t had any cargo delayed, a result of having strong service agreements. The importer said it gives carriers an eight-week, rolling, 40-foot-equivalent unit forecast and will reject bookings if cargo doesn’t ship when scheduled.

“I do expect there to be some tightening occurring as they accelerate their laying up of vessels and their redesign of the current strings in those trade lanes,” said another shipper who hasn’t seen any of their cargo headed to Canada and the U.S. rolled. “I’m waiting for the shoe to drop and there to be some space issues moving into late summer.”

The spot rate for shipping a 40-foot container from Shanghai to the West Coast this week fell 3.4 percent to $1,277 from $1,322 last week, according to the Shanghai Containerized Freight Index, as displayed on the JOC.comMarket Data Hub. The spot rate to the East Coast fell 3.8 percent to $1,884 per FEU from $1,958 last week.

It could be crunch time soon. “August and September. This is when the crush is supposed to be on,” Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association, said Friday. He is aware of a few cases of rolled cargo that occurred last month, but knows of no significant rolling the past week or so, he said.

Former shipping executive and president of Griffin Creek Consulting Ed Zaninelli said carriers are reporting vessel utilization percentages in the mid-90s, so the expected spike in cargo volume in the coming weeks will lead to full ships and possibly some rolling of cargo to subsequent voyages on the busiest trade lanes. These factors will push freight rates higher.

“The NVOs are starting to panic. Rates are up. Their customers are surprised,” Zaninelli said. Nevertheless, the expected peak-season rally will probably not be as robust as it was in past years. “No one is saying this will be a strong peak season,” he said.

Another indicator space is tight is that some importers are increasing the minimum quantity commitments they make to carriers for a specified time period in order to secure a favorable rates. One carrier reported the MQCs are being increased not so much for rate purposes, as to ensure sufficient space now that vessels in the eastbound trans-Pacific are filling up. The concerns over space availability are also a reaction to the mergers and acquisitions that are taking place this year, and the impact these are having on established shipper-carrier relationships. An executive from another major container line said the sought after MQC increases were more of a sign of a healthier late peak season than shippers moving away from certain carriers.

NVOs are not taking much solace from the drop in spot rates this week because the rates are much higher than they were during the spring, when the spot rates were about $1,500 per FEU to the East Coast and $800 to the West Coast. NVOs and their customers had gotten used to the ultra-low freight rates, and there is some pushback now that rates are at higher levels, Zaninelli said.

NVOs are concerned because when vessels fill up, the lowest-paying containers are the first to be bumped off of ships and “rolled” to subsequent voyages. Several importers reported to JOC.com there were some instances of cargo rolling two to three weeks ago, but the situation cleared up quickly when it became evident that proposed general rate increases did not materialize.

Some container lines in early July individually announced GRIs of $600 to $1,000 effective Aug. 1. The SCFI spot rates jumped double-digits in mid-month, and some shipments were rolled, but the increases were not sustained.

similar pattern of volatile price swings from week to week has taken place in the Asia-Europe trades. The SCFI spot rates to Northern Europe and the Mediterranean dropped by double digits this week after large increases the previous week.

Cargo volumes so far this year have not been bad. West Coast ports, which account for more than two-thirds of U.S. containerized imports from Asia, reported an increase of 3.1 percent year-to-date through June, according to the Pacific Maritime Association website. While nowhere near the 10 percent-plus increases that were common 10 years ago, the trans-Pacific is a mature trade now and industry analysts expect 3 percent to 5 percent annual increases in containerized trade to be the new normal.

However, carriers continue to struggle with overcapacity in the major east-west trade lanes, due to huge vessel orders the past five or six years that have resulted in deliveries far beyond what the trades can absorb. Carriers in the eastbound Pacific this summer have taken the unusual step of removing vessel strings as the peak season approached rather than adding peak-season only strings, but capacity has continued to outstrip demand. The Ocean Three Alliance last month announced the removal of two weekly services, and the G6 Alliance merged two weekly services into one.

A similar story is unfolding in the trans-Pacific trade to Canada where the Canadian International Freight Forwarders Association reports that after some sporadic incidents of cargo rolling in recent weeks, it looks like the peak season is indeed at hand. A CIFFA member forwarder echoed the views of some forwarders when he told Ruth Snowden, executive director, “Vessels are full now, and forecasts for the next four weeks are strong.”

Carrier behavior in the Canadian trans-Pacific trade is the same as through U.S. ports. Importers and NVOs that played the spot market and enjoyed especially low rates this spring and early summer are now being told they have to pay higher rates or their shipments will be left behind, but loyal customers that are paying market rates have had no problem so far getting their containers on vessels.

“Certainly the feeling is that loyalty, commitments, revenue do play a factor, and that where forwarders and carriers have established commitments and a strong relationship, service is not being seriously impacted,” Snowden said.

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

Aug 10

LA/LGB September 2016 Chassis Surcharge Update

www.joc.com

Chassis-leasing companies, truckers and beneficial cargo owners have raised their opposition to a proposed $5chassis gate fee in Los Angeles-Long Beach to a new level by filing their complaints with the Federal Maritime Commission.

FMC Chairman Mario Cordero told JOC.com the commission is looking into whether the fee, which is scheduled to take effect on Sept. 1 after a one-month delay, runs afoul of Section 10 of the Shipping Act of 1984, which addresses unreasonable practices, and also anti-competitive provisions under the 6(g) provision of the act. Cordero questioned the basis for a chassis fee, noting that before the majority of carriers got out of the chassis business, the repositioning of chassis was part of the contractual relationship between terminals and carriers.

It appears that BCOs, who would ultimately pay the fee, are pressuring the shipping lines they contract with to try and prevent the terminals from charging the fee. A majority of the 13 terminal operators in Los Angeles-Long Beach have a corporate affiliation with shipping lines. The lines are concerned that the $5 fee per chassis gate could interfere with their relationships with their BCOs customers. The fee would cost individual customers tens of thousands of dollars a year considering the volume of cargo they ship through the largest U.S. port complex.

The terminal operators are members of the West Coast Terminal Operators Agreement, and their argument for charging the fee to equipment-leasing firms is based on a fundamental business principle. The chassis are stored on the terminals, which are located on some of the costliest property in Southern California. Terminal operators employ expensive longshore labor to stack and unstack the chassis and deliver them to truckers. The terminals via EDI notify the equipment owners to whom the chassis are delivered, and the leasing companies use that information for billing purposes in their for-profit operations.

“We are providing these services, and we want to be compensated just as everyone wants to be compensated for the services they provide,” said John Cushing, president of PierPass Inc., which provides management services for WCMTOA.

Until recently, shipping lines owned most of the chassis that are used at U.S. ports. The terminal operators charged the shipping lines for storage, stacking and EDI services through their terminal throughput agreements with the lines. However, in 2015, the lines completed their sale of the chassis to the big three leasing companies, DCLI, Flexi-Van and TRAC Intermodal, which formed a neutral “pool of pools” for chassis in Los Angeles-Long Beach.

Now that the leasing companies own and manage the equipment, the terminal operators receive no compensation from the shipping lines for the services they perform, Cushing said. The likely scenario under the WCMTOA proposal would be for the terminals to charge the $5 fee to the equipment-leasing companies, which would pass it on to the truckers, who would pass it on to the retailers and other BCOs.

WCMTOA earlier this summer notified the equipment-leasing companies of the proposed fee, and then WCMTOA filed its tariff with the FMC 30 days before the effective date of Aug. 1, as required by the commission. However, when that date approached, the leasing companies balked, and WCMTOA decided to postpone the effective date until Sept. 1, Cushing said.

Technically, the terminals have no obligation to store the chassis on their facilities. However, if the terminal operators tell the leasing companies to remove their equipment, chaos would ensue because at this time there are no designated start-stop locations in the harbor on which to store the chassis. Spokespersons for organizations representing BCOs and the equipment-leasing companies either declined to comment or could not be reached.

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

 

Aug 10

High Capacity Utilization is this Week’s Theme in the Trans-Pacific

www.joc.com

High capacity utilization levels on the major east-west trades in the beginning of the third quarter are a result of supply-side adjustments rather than stronger demand for containerized cargo shipping in the peak season, according to Alphaliner.

The shipping industry analyst said average linehaul capacity utilization in the third quarter so far was reported to be in the mid-90 percent level, with only the Asia-Mediterranean routes at below 90 percent, due in part to capacity additions implemented by the CKYHE carriers earlier this year.

With freight rates falling to record lows in the first half, carriers introduced significant capacity cuts on the trans-Pacific and Asia-Europe routes.

Alphaliner said the adjustments were most apparent on the trans-Pacific, from which the Ocean Three partners withdrew two Asia-U.S. East Coast strings and one Asia-U.S. West Coast string in June, and the G6 Alliance withdrew one Asia-U.S. West Coast string. According to Alphaliner data, average weekly trans-Pacific capacity was down by 2.7 percent year-over-year in August.

On the Asia-Europe route, weekly capacity rose by only 2.3 percent year-over-year. The analyst said supply growth from the continued injection of new ships with capacities of 14,000 twenty-foot-equivalent units to 20,000 TEUs ships was largely counterbalanced by a reduction on the number of weekly services, as each of the four alliances has removed one Asia-Europe string since September last year.

There is little expectation that a strong peak season will follow weak cargo volumes recorded on the two main trades in the first quarter. Volumes on Asia-Europe westbound grew by 1.3 percent in the second quarter of 2016 and by 1.2 percent in the first half. While not much to write home about, the volumes were a vast improvement on the first half of 2015 when demand fell into negative growth at 3.2 percent.

Eastbound trans-Pacific volumes fell by 0.7 percent in the second quarter, although the first half recorded a 3.7 percent increase in demand that was a slight improvement over the same period last year, according to the latest trade data from Container Trade Statistics and PIERS, a sister product of JOC.com within IHS Markit.

While the demand for containerized cargo remains volatile, when looked at over the past 24 years, the trend is towards slowing growth in global container trade. Data from the International Monetary Fund and Drewry shows that average container growth from 1992 to 2001 was 8.5 percent, it was 10.8 percent from 2002 to 2008, and fell to 5.1 percent from 2010 to 2016.

In its interim results briefing, Orient Overseas (International) Ltd., the Hong Kong-listed parent of Orient Overseas Container Line, said while global GDP growth remained uninspiring and there was muted demand for containerized transport, there were positives to be found.

OOIL Chief Financial Officer Alan Tung said the recent consolidation activity that has seen CMA CGM acquiring Neptune Orient Lines (parent of APL), and mergers between Hapag-Lloyd and United Arab Shipping Company and Cosco and China Shipping Container Lines, was good for the industry.

His comments on consolidation also extended to with the four major shipping alliances, which will become three from the beginning of April 2017. Scrapping was another positive trend, with capacity cut in this manner expected to exceed 450,000 TEUs by the end of the year, up 2.2 percent year-over-year.

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Another positive was the gradual rebalancing of supply and demand. OOCL compiled the forecasts of a wide range of maritime analysts and the average demand growth for 2016 was estimated at 3 percent with a 4.3 percent average supply growth. The gap narrowed to 3.9 percent demand growth in 2017 and 4.5 percent growth in average capacity supply.

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

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

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 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.