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.”
Click to Enlarge
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.
A 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.
Interested in sharing JOC.com content? Please view our current Copyright and Legal Disclaimer information, as well as ourFrequently Asked Questions to ensure proper protocol is followed. For any questions, contact the Customer Support team at our Help link.
Contact Bill Mongelluzzo at firstname.lastname@example.org and follow him on Twitter: @billmongelluzzo.