Jul 11

Trans Pacific Ocean Rate Review 2017-7-11

Source: JOC.com

US importers in the coming weeks will begin to encounter a tightening of vessel space and occasional equipment shortages, but the likelihood of large rate increases or peak-season surcharges in the eastbound Pacific will be slim this peak season.

That will be a challenge for carriers hoping to improve their bottom line during the peak shipping season after signing at best break-even service contract rates of about $1,300 per 40-foot container to the West Coast and $2,300 to the East Coast. Transportation executives from throughout the supply chain say significant general rate increases (GRIs) or peak-season surcharges in August through October appear unlikely due to a nagging capacity overhang.

In a recent report, Drewry stated that carriers in the major east-west trade lanes this year are recovering some pricing power, certainly when compared with the “rock-bottom” rates that were in effect in the spring and summer of 2016. Nevertheless, rate increases on the spot market have been more muted in the eastbound trans-Pacific, where spot rates are up 33 percent from last summer, compared with the Asia-Europe trade lane, where the increase is 61 percent.

However, spot shortages of space and equipment are possible, and carrier executives are therefore urging retailers and other importers who intend to ramp up their imports from Asia to begin immediately to plan ahead for their space and equipment needs so they are not shut out when the real capacity crunch hits in August and September. While some shipments invariably miss their intended voyages and are “rolled” to a subsequent voyage during the height of the peak season, experts said capacity is sufficient between most port pairs so rolled cargo will be one-off incidents and will not last for a prolonged period.


“We have observed marked improvements in the global economic environment since the turn of the year, and we expect a much healthier outlook for the liner sector and a stronger peak season compared to 2016,” said Stephen Ng, director of trade at Orient Overseas Container Line (OOCL).

“We see positive momentum going into the second half of the year,” said an APL spokesman. “APL has already started working closely with our customers on space allocation issues to ensure that their shipping needs and service expectations are met,” the spokesman said.

The spot rate increases tied to GRIs, followed by immediate rate drops, that occurred over the past couple of months, are seen by shippers and carriers as an indication that the peak-shipping season this year will look much like those of recent years.

This is likely to be the case in the trucking and rail sectors as well as ocean shipping. “The past two years, peaks have been relatively mild, with stable service, an earlier start, and a longer finish consistent with improved planning and the new consumer purchasing patterns,” said Mark Yeager, CEO of the LTL management company, Simplified Logistics, and former president of intermodal marketing company Hub Group.

“The peak season curve is not as steep as it used to be,” said Dave Arsenault, president of Logistics Transformation Solutions and former president of the Americas at Hyundai Merchant Marine. He said the spread between the winter slack months and the busy late summer to fall period is not as great as it used to be.

Import volumes are more consistent now throughout the year because of e-commerce purchasing habits that dictate inventory must be in stock in the United States or sales will be lost. The traditional peak will still occur, but it will be less intense compared with the not-too-distant past, and it will be driven by holiday-season items like toys that are placed under the Christmas tree, he said.

However, due to economic growth in the United States, Europe, and Asia there is tighter vessel space and a strain on container and chassis availability in some locations. Zvi Schreiber, CEO of Freightos, said indicators are already present that point to a good peak season. “One of the best indicators of this is air freight pre-booking for [the fourth quarter]. It is already booked up earlier than it was at this time last year, which was a strong year for air freight,” he said.

The spot rates in the eastbound Pacific increased by double digits before a previously announced general rate increase for July 1, but in the week ending July 7 the rates backed off 2 to 3 percent. That development indicated that the full impact of the peak season had not been felt, but the modest drop from the previous week’s spike also demonstrated that vessel space is starting to fill up.

Beneficial cargo owners are urged to meet with their carriers to pre-plan vessel space and equipment needs. “Equipment availability has indeed been tighter than usual due to new regulations requiring water-based paint for new containers. For OOCL, we have taken steps to ensure supply through leasing sources as well as from production of new containers to meet expected demand from customers,” Ng said.

Railroads also appear to be ahead of the curve when it comes to intermodal service. “Rail reliability on the intermodal side is very good,” said transportation analyst Tony Hatch, although he added: “It’s not truck-like.”

There has been some expectation in the trade that completion of the Panama Canal expansion project in June 2016 and the Bayonne Bridge raising project last month will produce a surge in cargo volume at East Coast ports, which could create space issues this peak season.

Schreiber predicts that volumes to the East Coast may be greater early in the peak season, but as it gets closer to the holidays, the more efficient, albeit more costly, West Coast intermodal routing will kick in. Citing last year’s experience, Schreiber noted that West Coast imports increased 1 percent between October and November, and East Coast imports dropped 2 percent.

Containerized imports in the first half of 2017 are predicted to have increased 6.4 percent from the same period last year, according to Global Port Tracker. Ports on the East and West coasts reported exceptionally strong performances in May, the last month for which hard numbers are available, according to PIERS, the JOC.com sister product. Percentage growth in the second half of the year is projected to be healthy, although not quite as robust as in the first half of the year because the numbers will be compared to relatively good growth figures in the second half of 2016.

Early indications from ports that have released hard numbers show that June imports may exceed earlier expectations. The Port of Long Beach reported Monday that imports increased 7 percent, and the Port of Oakland reported that imports increased 5.1 percent, from June 2016.

Projecting container volumes in the eastbound Pacific for the second half of the year is an imprecise science, with some obvious disagreements among forecasters. A survey of freight forwarders and other intermediaries by Mike King and Cathy Roberson is not as bullish as projections by US retailers. Their June APAC Forwarding Index revealed that only 38 percent of respondents predicted that ocean freight shipments in September, which is considered a peak shipping month, would be higher than the volumes recorded in May in the eastbound Pacific. Some 42 percent predicted lower volumes compared with May. “The fall in optimism, at least compared to previous surveys, chimes with recent ocean spot freight rate declines on the major trades,” the authors stated.

The monthly Global Port Tracker published by the National Retail Federation and Hackett Associates is more bullish on the second half of the year. They predict that July and August should be two of the busiest months ever seen for imports at all of the major US gateways. “We’re expecting retailers to import some of the largest volumes of merchandise ever,” said Jonathan Gold, president of supply chain and Customs policy at the NRF. Global Port Tracker predicts that US ports in August will handle 1.75 million TEU container imports, which would be the highest monthly volume recorded since the NRF and Hackett Associates began tracing imports.

Nevertheless, the continued capacity overhang in the Pacific, the introduction of bigger ships by the restructured alliances and the fact that carriers so far this summer have not been able to implement rate hikes that stick for more than a week, all point to modest general rate increases or peak-season surcharges in late summer and fall.

“Rates in the long-haul trades have stabilized and we do not anticipate massive peak-season related surcharges or rate increases from where the market is today,” said Joerg Hoppe, DB Schenker’s director of ocean freight North/Central China. “Space into the US, and to the East Coast especially, is not an issue,” he said.

Even a sudden, unexpected event such as last week’s cyber attack that affected Maersk Line and its APM terminal affiliate, which saw Maersk bookings drop by about 35 percent on the Freightos AcceleRate platform, did not move spot rates, Schreiber said. “Chronic oversupply remains the leading cause of excess capacity this peak season,” he said.

This reality could have a chilling effect on carriers that are filling much of their allotted space with service contract rates of about $1,300 per FEU to the West Coast and $2,300 to the East Coast. Some industry analysts, such as Ed Zaninelli, president of Griffin Creek consulting, considers those to be break-even rates, with peak-season surcharges or GRIs needed to push the carriers to profitability. Others in the industry said break-even is closer to $1,600 and $2,600 per FEU, given today’s higher longshore labor, bunker fuel, and intermodal costs.

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


Jul 03

Spot rates spike at end of June

Spot rates in the eastbound Pacific broke a three-week losing streak, spiking 17 percent to the East Coast and 26.2 percent to the West Coast.

Carriers may want to look at this as the beginning of a long and prosperous peak season, but that thinking may be premature. Four carriers had previously announced general rate increases (GRIs) to take effect either on July 1 or July 15, so this week’s bump in the spot rates probably reflected an attempt by some importers to push shipments forward before the GRIs took effect.

Indeed, spot rates on the Asia-North Europe route increased 13 percent this week, and the Asia-Mediterranean saw a rate increase of 8 percent, also in response to GRI announcements by several carriers. Also, the peak-shipping season in Europe begins earlier than in the United States, where retailers time their imports closer to the Black Friday sales after Thanksgiving.

The spot rate for shipping a 40-foot container from Shanghai to the East Coast this week was $2,356, up 17 percent from last week. The West Coast rate was $1,378 per FEU, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

Spot rates in the eastbound Pacific had edged lower for three straight weeks, which is normal in June. Imports from Asia should begin to pick up soon with back-to-school and then holiday season shipments.

Carriers this year appear to be following a strategy they deployed last year in which they announce GRIs of about $700 per FEU to take effect on the first of each month. They normally get a slight bump, much less than the $700 they announce, and then the rates slide for the ensuing three weeks. This year, Maersk Line, Hapag-Lloyd, and Orient Overseas Container Line announced $600 to $700 per FEU increases for July, and Westwood shipping announced a $140 increase.

When the peak season does kick in, probably in August, East Coast rates may increase faster than West Coast rates because carriers have been able to better match supply and demand on all-water services to the East Coast than to Los Angeles-Long Beach, where independent lines have concentrated most of their trans-Pacific capacity.

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


Jun 27

Maersk hit by cyber attack – Ports of New York and New Jersey closed

The Maersk group has been hit by a cyber attack that has affected its operations around the world, closing terminals in Rotterdam and the Port of New York and New Jersey.

The Danish transport and energy group said its information technology (IT) systems are down across multiple sites and business units owing to the attack.

“We continue to assess the situation,” the company said in a statement posted to Twitter.

“The safety of our employees, our operations, and customers’ business is our top priority.”

“We will update when we have more information,” the Copenhagen-based company said.

APM Terminals (APMT) Maasvlakte 11 container terminal in Rotterdam is said to have shut down owing to the attack.

APMT’s terminal in the Port of New York and New Jersey was also impacted, and forced to close for the day.

The attack is disrupting operations for businesses and governments throughout Europe, hitting Ukraine particularly hard, and is similar to the so-called “WannaCry” attacks that paralyzed digital infrastructure around the world in May, according to the Russian cybersecurity firm Group-IB.

Like WannaCry, this attack involves ransomware, which hijacks control of a computer and demands payment to an online address in return for regaining acess to data and systems.

This is not the first time a container line has fallen victim to a cyber attack, as a 2011 cyberattack against state-owned Islamic Republic of Iran Shipping Lines crashed the carrier’s IT system, resulting in the loss of data tracking its 170-ship fleet and some cargo.

In 2014, hackers stole financial records, customer data and shipment manifests from as many as seven shipping and logistics companies.

A 2011 cyberattack against state-owned Islamic Republic of Iran Shipping Lines crashed the carrier’s IT system, resulting in the loss of data tracking its 170-ship fleet and some cargo

This story will be updated as more information becomes available.

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Contact Bruce Barnard at brucebarnard47@hotmail.com.



May 08

The Growing Volume Through British Columbia Ports


The British Columbia ports of Vancouver and Prince Rupert are increasing their terminal capacity and improving their cargo-handling efficiency as they look to take additional market share from US West Coast ports.

The Canadian Pacific Coast ports already have a record of success in attracting Asian imports that historically moved through the Northwest Seaport Alliance, Oakland, and Los Angeles-Long Beach to the Midwest.

Prince Rupert, with direct intermodal service to Chicago, Memphis, and New Orleans via CN, was designed from the day it opened in October 2017 as a gateway for both countries, and about two-thirds of its volume moves to or from the US.

Vancouver for much of its history was content to be Canada’s Pacific Coast port, and as recently as 2008 only 7.5 percent of its volume was US cargo, according to a study by Ocean Shipping Consultants. With Canada being a mature market, however, Vancouver has been making a strong play for US cargo, and by 2013, the report stated, 22.9 percent of its container volume was US cargo. A more recent report by Robert Leachman, University of California professor of industrial engineering, stated that the British Columbia port handles 4.4 percent of total US containerized imports from Asia.

Screen Shot 2017-05-08 at 7.55.00 AM

The only restriction to further penetration of the US market, it seems, is that Vancouver and Prince Rupert are bumping up against their physical capacity. Vancouver, with an estimated annual capacity of 3.7 million 20-foot-equivalent container units, handled 2.9 million laden and empty TEUs in 2016. Prince Rupert, with a listed capacity of 850,000 TEUs, handled approximately 800,000 TEUs last year.

Prince Rupert is taking the lead in expanding its physical capacity. The port, located 500 miles north of Vancouver, in August will officially open its second container berth, Marketing Manager Brian Friesen said. It will increase Prince Rupert’s capacity to 1.3 million TEUs. Although no new liner services have committed, Friesen said, “There is a lot of interest in Prince Rupert.”

Vancouver is pursuing several expansion projects at existing facilities, as well as a longer-term plan to build a new container terminal at Roberts Bank that will have capacity of 2.4 million TEUs, with estimated completion in the mid-2020s.

The British Columbia ports have a price advantage over their US counterparts in serving the large Midwest market. Factoring in cheaper intermodal rail rates to Chicago, terminal-handling costs, and the merchandise-processing fee on imports at US ports, the cost of moving a container from Asia through Vancouver can be $600 less than shipping through a US West Coast port, according to the Ocean Shipping Consultants study.

Railroads don’t talk about pricing, but industry sources say the intermodal rate to Chicago via the Canadian railroads can be $300 to $400 per container less than what the US railroads charge. West Coast port executives say they have raised this issue with BNSF and Union Pacific railroads, without results.

The report by British consultants Andy Penfold and Dean Davison, which was performed on behalf of the port of Vancouver, said further expansion of the port must involve continued cooperation between the port authority and the Canadian railroads. “The business is almost entirely rail driven,” they stated.

The report, however, also emphasized that Vancouver operates efficiently, a point that has been stressed by Peter Xotta, the port’s vice president of planning and operations. He has cited Vancouver’s average gate time for trucks of 40 minutes, compared, for example, to gate times in Los Angeles-Long Beach, which the Harbor Trucking Association says in its monthly reports average about 85 to 87 minutes.

This lesson isn’t lost on the US ports. John Wolfe, executive director of the Northwest Seaport Alliance of Seattle and Tacoma, said the ports are doubling down on productivity-enhancing measures that include physical infrastructure improvements and operational enhancements orchestrated through the port authority’s operations center. The center houses a team of supply chain specialists in areas including vessel, terminal, labor, rail, and trucking.

Enhancing productivity is a priority at most North American ports today following the April 1 launch of the three global vessel-sharing alliances and the ever-increasing size of ships the carriers are deploying to the major gateways. In terms of capacity, Prince Rupert will be served by one string where the vessels are larger than before and another where the ships are somewhat smaller, so the net result will be no significant change, Friesen said. 

Prince Rupert has three weekly services from Asia, two operated by the Ocean Alliance, with Cosco Shipping as the lead carrier, and the third by the 2M Alliance of Maersk and Mediterranean Shipping Co. OOCL will take some slots with the Ocean Alliance, and it will be the newest line with a presence in Prince Rupert.

The port also is receiving three new super-post-Panamax cranes for its new berth, which will allow it to handle mega-ships holding containers 25 rows wide. The new berth also will have direct access to the on-dock rail operation that receives two inbound trains each day and sends two trains outbound for 14 intermodal train calls each week. Prince Rupert markets its on-dock railyard and the ability to handle 10,500-foot-long trains as providing a significant boost to the efficiency of its intermodal exchanges.  

Prince Rupert in recent years has been attracting more outbound shipments, which will grow further this summer with the opening of an agricultural export facility on a 10-acre site on Ridley Island. Ray-Mont Logistics is building the facility, which will load into marine containers a variety of export crops including pulses, cereals, lentils, peas, soybeans, flax, and wheat. The agricultural products will arrive by rail and truck from western and central Canada and the US Midwest, Friesen said. 

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

Mar 30

Analysis of the New Carrier Alliances 2017-3-30

New analysis of the vessel sharing agreements has revealed the scope of the changes that are going to hit the market from this weekend, while highlighting again the cut back in routes, port calls and options for shippers.

From April 1, four alliances will become three as the brand new Ocean Alliance and THE Alliance start operations, and the 2M Alliance with its slot sharing partner Hyundai Merchant Marine rolls out its new service offerings.

Software solutions provider CargoSmart studied the networks of the three alliances and made some interesting findings. For instance, nearly 70 percent of the alliances’ direct routes will be operated by one alliance, led by 2M that will control 31 percent of the direct routes being offered.

The Ocean and THE alliances will gain two additional ports on Asia-Europe while losing five ports on the trans-Pacific.

Services from the three alliances using the Suez Canal will decline by 7 percent, and while the percentage of services using the Panama Canal will remain the same, over 50 percent will be operated by the Ocean Alliance.

A total of 60 percent of the new alliance routes on Asia-Europe will have shorter transit times, and half of those on the trans-Pacific. Many transits on both Asia-Europe and trans-Pacific voyages will be two to three days faster on average, according to the CargoSmart data.

An area of concern shippers will be that 50 percent of the routes to be offered by the Ocean and THE alliance will change from direct to transshipment. Fewer direct route options and more transshipment could lead to a greater chance of missed schedules.

Across all three alliances, the Asia-Europe trade will have net 50 new port pairs while the trans-Pacific will have 120 port pairs less than the old alliances.

The analysis also highlighted one of the key issues that will be faced by shippers using the new alliances. All shipments could be on the same vessel even if a BCO books with different carriers. For example, 37 percent of vessels in the Asia-Europe trade network of the Ocean Alliance will be operated by CMA CGM.

Another finding by CargoSmart was that there will be fewer sailing days per week for the top five Asia-Europe trade lanes. Shanghai-Hamburg sailing days will drop from 5 a week to 4. Shanghai-Rotterdam from 6 to 5, and Shanghai-Antwerp will decline from 5 sailing days a week to 3.

For those ports with more services or vessels, CargoSmart warned that there may be shipment delays because of increased handling volumes at the ports. For instance, greater numbers of vessels will be visiting Rotterdam and the average vessel size will increase by 10 percent.

The size of vessels being deployed on the Asia-US trade was also rising. A spokesman for CargoSmart said based on the proforma schedules provided by the carriers through March 17, most of the top US ports would have fewer visiting vessels for each alliance service, while the average vessel size by TEU capacity for the alliance services will increase at most of the top US ports.

Michael Dye, group managing director for non-vessel owning common carrier CL Worldlink, said it was too early to tell if the new alliances will be a benefit or bane to the industry.

“I am always concerned about too little competition in any industry and ours is no different,” he said. “When you look at some trade lanes there are only two carriers operating direct port to port services. I realise this is a factor of supply and demand but as a consumer I want choices and the more the better especially when it comes to equipment availability and scheduling.

“In today’s marketplace the challenge is putting together a package that is both competitive and meets the client’s needs in terms of direct service, transit time, etc. as we still seem to be mired in the non-compensatory pricing environment. Perhaps this will change with the new alliance structure, but doing so and still having healthy competition remains to be seen.”

With such a complete global restructuring of the container shipping networks, there is huge concern among shipper groups and forwarders that the new mega alliances will create significant disruption to their supply chains.

Chris Welsh, secretary general of the Global Shippers’ Council, said the problem was that in the formulation of the new market structure, the customer was largely absent from the discussion, with the focus on what works for the container lines.

“There is little differentiation in price and service offering by carriers. Shippers are seeing less choice and less competition. We all need to be worried about that,” he 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 Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.

Mar 23

Expect Shipping Disruptions in April and May Due to the Transitioning within the new Alliances

SHANGHAI — There is mounting concern from shipper groups and forwarders that the new mega alliances launching in just over a week will create significant disruption to their supply chains.

Container lines will be transitioning from the old alliances to the new networks on April 1, but with such a total restructuring of the vessel-sharing agreements (VSA) and the huge number of port pairs involved — 420 on Asia-Europe alone — a smooth rollout is not expected.

“The VSA structures will bring big changes and rough seas are coming in April. As the carriers start to reposition and pull ships out, it is going to cause chaos,” said Ken Sine, vice president of global ocean product at Crane Worldwide Logistics.

The Ocean Alliance, THE Alliance, and the 2M Alliance plus Hyundai Merchant Marine will provide 17 weekly strings between Asia and North Europe, one more than offered by the four existing alliances (2M, G6, CKYE, and O3).

Sunny Ho, executive director of the Hong Kong Shippers’ Council, agreed that disruption was on the cards, with fears that capacity management and manipulation could be a major threat to carrier customers.

“The top four carriers account for 47.7 percent of total capacity. Most other operators are too small to offer real sense of rivalry,” he told delegates at the Intermodal Asia conference in Shanghai. “There is also concern of product diversification, such as port calls, routing, network, and frequency.”

Jessica Zhang, international trade operations for the Shanghai branch of Dow Chemical, said even though the container shipping world was undergoing a major restructuring, shippers’ commitments remained the same.

“Shipping lines are sharing slots in alliances, but even though their operational model has changed, our fundamental need is for them to provide a reliable service. On-time delivery is one of our KPIs [key performance indicators] that we commit to our customers, and we expect that same commitment from the lines,” she said.

Even though the new alliances would redraw the global networks and port calls, Zhang said her needs were straightforward. “We need to make sure we have enough space to fulfill our requirements.”

Chris Welsh, secretary general of the Global Shippers’ Council, said the problem was that in the formulation of the new market structure, the customer was largely absent from the discussion, with the focus on what works for the container lines.

“There is little differentiation in price and service offering by carriers. Shippers are seeing less choice and less competition. We all need to be worried about that,” he said.

Welsh said the Global Shippers’ Council was questioning the entire alliance business model, as in the past the VSAs had failed to provide shippers with the kind of certainty they needed to operate their just-in-time supply chains.

“Previous alliances resulted in uncertainty because of blanked sailings, delays, and port congestion, and there is no reason to believe the new alliances won’t continue to undermine that certainty that shippers require,” he said.

Alan Murphy, CEO of SeaIntel, said disruption would be difficult for the carriers to avoid. “There are three alliances that are reconfiguring, two of them completely new. There are a lot of services that need to move from one set of partners to another set of partners, and it could be sorted out soon or it could take weeks,” he said.

SeaCube Container Leasing chief operating officer Robert Sappio also raised the potential of a shortage in boxes as the new alliances start to operate in April.

“That will take some time to get right and to get in effect for the peak shipping season, and it is possible there could be some inefficiencies as the alliances get used to their new networks and new rotations,” he said. “That may also cause a need for new equipment, at least in the short term.”

As shippers try to make sense of the new alliance networks, Sine warned delegates that maintaining a diversified portfolio of carriers was critical and a shipper or consignee needed to fully understand what they were getting in the new alliances.

“When you contract with a carrier, you need to avoid single sourcing yourself. If an NVOCC [non-vessel operating common carrier] comes with a great offer but doesn’t tell you that their solution is Maersk Line and MSC [Mediterranean Shipping Co.], they have single sourced you and you are not managing your risk,” Sine said.

“And it is all about managing risk as we learned from the Hanjin Shipping bankruptcy. Understand the services you use and know what is involved in the alliances you are using. Understand what you are contracting, but understand that you are not just dealing with a carrier that is moving cargo under a bill of lading for you. You also need to worry about its VSA partners.”

One of the big worries for shippers at the moment is related to carriers shifting vessels around in preparation for the launch of the new alliances and creating serious space shortages for North Europe exports to Asia. It has had the effect of driving up rates on the backhaul route, with CMA CGM just announcing that its freight-all-kinds rate, or FAK, from Rotterdam to China would be $1,400 per 20-foot-equivalent unit (TEU) from April 16.

That is more than $500 per TEU higher than the current headhaul spot rate from Shanghai to North Europe, which is tracked on JOC.com’s Market Data Hub.

Welsh said from a customer point of view, this was totally unacceptable. “Cargo space is being rationed by carriers. It is causing a lot of shippers to consider other alternatives to ocean freight, such as air or rail. There is huge interest in the China-Europe rail because of this,” he said.

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

Mar 03

2017-2018 FCL Rate Contract Forecast Update March 3, 2017

The Megas are Coming: Containers Still Chasing Cargo

While optimism and enthusiasm is a good thing, it could be said that containership carriers may very well have something else coming. There are too many megas coming into service, and this avalanche of empty boxes is threatening to upset the tenuous ocean freight rate gains of the past six months.

March 1 marked the six month anniversary of the Hanjin bankruptcy, whose sudden and brutal death likely saved the box-ship industry from losing 3-5 other carriers.

Hanjin’s filing instantly took 93 ships and some 600,000+ TEU’s off the market.  While not ignoring the horrific financial losses being suffered by Textainer, Danaos, and others due to Hanjin, their bankruptcy stopped what was likely the greatest container rate collapse of all time. Rates immediately skyrocketed, giving the carriers an opportunity to stop the financial bleeding.

While rates have slightly slid since Chinese New Year, they are still almost double those of last summer when the market average price in the Xeneta spot rates index at the end of June stood at $1034 (China Main ports – North Europe Main | 40’ container).

Today (March 3, 2017), the Xeneta spot rates index shows the market average price for a 40’ box from China Main ports – North Europe main ports at $1761, up 252%since the same time last year when the same box was moved on the same corridor at a market average price of $499.


Mega Vessels with Overcapacity | What Gives?

During the loom of last year, carriers continued to cancel sailings, re-jiggered their basically ineffective alliances, and scrapped a record amount of containerships – but now it all may come undone as previously contacted megaships begin to arrive. The new vessels threaten to upset the tenuous supply-demand ratio of boxes-to-cargo that was finally beginning to balance.

Just last week MSC received the 19,472 TEU MSC Rifaya, and within the next 30 days will take delivery of two more 19,500 TEU vessels. And where will this almost 60,000 new TEU’s be dropped? Into the already-bloated Asia-North Europe routes. UASC will be be adding to the glut; they have six 18,800 TEU megas (totalling112,800) along with eleven 15,000 (165,000) TEU vessels on order.

That’s 337,800 empty TEU’s arriving into a market that’s already flooded with 1.3 million TEU’s (340 ships) laid-up capacity; with this many empty boxes, can the market still bask in the rally from the past few months? Tighter capacity measureshave indeed been taken by carriers to band aid the challenge as the megas soon invade the scene. Is it enough?


Maersk Takes a Pragmatic Approach

Maersk, on the other hand; took a realistic view of the marketplace and pushed their 2017 deliveries of nine 14,000 TEU vessels (126,000) out to 2018-2019. They said they did not have to make any penalty payments to the shipyards, and if volumes improved there were sufficient ships that could quickly be chartered. That’s perhaps some of the common sense thinking others in the industry should also display.

This won’t be easy on the S. Korea and Chinese shipyards, most of whom are already looking at shortened order books and increasing lay-offs. Government assistance will likely be required by the yards, but with 1.6 million TEU’s of new vessel capacity arriving in 2017, another 12-18 months of collapsing rates will surely bring more carrier bankruptcies and turn those temporary layoffs at the yards permanent.

While these are not pleasant decisions to make, the rest of us may be wondering, what’s the point with all the mega ships if they will be sailing empty? There are still too many boxes competing for too little cargo, and until the world economies improve, the carriers need to take a realistic look at the cargo – container relationship and decide accordingly. As I always say, the market remains unpredictable.

Feb 10

Consumer Spending Increases Imports

Source:  www.joc.com

Loaded container imports will increase 4.6 percent in the first half of 2017, a significant year­ over ­year improvement, as retailers balance inventories with demand fueled by buoyant consumer spending, Global Port Tracker forecast Thursday.

The forecast of a 4.6 percent increase in the first six months of the year is about three times as large as the 1.6 percent hike in 2016 over the same period, according to the report, which is produced for the National Retail Federal by consultant Hackett Associates.

“The United States is well placed in 2017 and is likely to outperform most of the rest of the developed economies,” Hackett Associates founder Ben Hackett said. “If the infrastructure investments promised by the new administration come about, we can expect stronger growth than in 2016, but that assumes good relationships with US trading partners and no recourse to trade barriers that would result in a tit­ for ­tat response.”

Cargo volumes will increase by a healthy clip year­over­year in several months at the start of the year, rising 6.6 percent in January, 7.8 percent in March and 8.2 percent in April.

Volumes will decline by 0.6 percent in February, compared to the same month in 2016, but increase by 2.3 percent and 4.3 percent in May and June, the report said.

The NRF forecast is broadly in line with that of Mario O. Moreno, senior economist for IHS Markit, who predicted in January that US containerized imports will expand by 4 to 5 percent in 2017, and reach a new peak of approximately 21.4 million. That was based mainly on expectations of stronger economic growth, with a 2.3 percent increase in GDP in 2017 compared to the 1.6 percent growth in 2016.

Developments in the political arena could lead imports to exceed or fall below the expectations of the Global Port Tracker.

Jonathan Gold, NRF vice president for supply chain and customs policy, said the Global Port Tracker’s forecast was in line with the organization’s expectation of retail sales.

“Retailers try to balance inventories very carefully with demand,” he said. “So, when retailers import more merchandise, that’s a pretty good indicator of what they are expecting to happen with sales.”

An economic forecast for 2017 released Wednesday by the NRF, which represents discount and department stores, home goods and specialty stores, said that retail industry sales will grow between 3.7 percent and 4.2 percent over 2016 figures. Those sales, which don’t include automobiles, gasoline stations and restaurants, took into account job and income growth, along with low debt, that show “the fundamentals are in place,” the report said.

E­commerce sales, which are included in the overall number, are expected to increase between 8 and 12 percent, the forecast said.

Contact Hugh R. Morley at Hugh.Morley@ihsmarkit.com (mailto:Hugh.Morley@ihsmarkit.com) and follow him on Twitter: @HughRMorley_JOC (https://twitter.com/hughrmorley_joc).

Feb 02

2017 Contract Season Update 2017-2-2

Source:  JOC.com

Higher than usual sailing cancellations during Chinese New Year on the trans­Pacific and Asia­Europe trade lanes is the latest example of ocean carrier capacity discipline amid annual contract negotiations.

The deep capacity cuts forecast by SeaIntel come as spot rates on both trades are at least 50 percent higher than those quoted last year a week before Chinese New Year celebrations began on Feb. 7, kicking off a two­week shuttering of Asian factories. Blanked sailings are at their highest level in four years, and although trans­Pacific cuts will be deeper than last year, they won’t be as drastic as they were around the Chinese New Year in 2014 and 2015, SeaIntel Maritime Analysis CEO and partner Alan Murphy told JOC.com.

“Based on patterns of spot rate developments in past years, we are expecting spot rates on Asia­Europe and trans­Pacific to drop 15 percent to 20 percent in the coming weeks, but second­quarter spot rates we estimate to be up 90 percent to 150 percent year­over­year on Asia­Europe and 150 percent to 170 percent year­over­year on Asia to US West Coast,” he said.

Asked about the heavy capacity cuts expected in the next couple of weeks, a spokesperson for Orient Overseas Container Line said: “It is important that carriers constantly keep a close eye on the changes in the market and the performance of their products to ensure they are meeting customers’ requirements.”

The extent to which trans­Pacific and westbound Asia­Europe spot rates hold, or more likely, fall, give shippers insights (http://www.joc.com/maritime­news/trade­lanes/trans­pacific/trans­pac­spot­rates­signal­state­carrier­discipline_20170124.html) into just how much discipline carriers will have in matching capacity to demand, rather than chasing volume at lower rates. The spot rates are taken as a base on which to negotiate contracts.

While the majority of Asia­Europe service contracts are negotiated toward the end of the year, some large shippers are still in talks.

The supply chain director of a global European retailer said, “We negotiate rates from April­March so it gives us the benefit of a few months to see what happens to the market, but suffice to say we’re expecting relatively significant increases over [2016] rates and less choice for us given the consolidation that’s happening in the market place.”

Another Asia­ based global shipper said his company only opened its tender in January and would not know the scale of the increases until early February.

“We are certainly hoping for a price war, but the real market won’t show its face until the other side of Chinese New Year” he said.

Compared with a 10­ week average of pre­Chinese New Year capacity, Asia­ Europe carriers will cut capacity 40 percent in the first week after Chinese New Year, 25 percent in the second week, and 31 percent in the third week, according to SeaIntel.

Asia­ Europe carriers slashed capacity more dramatically in the first week of the Chinese New Year in 2016, reducing space available by nearly 53 percent. Although carriers pulled back in the following two weeks, reducing capacity 20 percent and adding nearly 1 percent, respectively.

On the trans­Pacific, SeaIntel expects carriers to cut nearly 27 percent of capacity in the first week of the Chinese New Year, and then 19 percent in the second week and nearly 4 percent in the third. Those are far sharper cuts then during Chinese New Year in 2016, when capacity shrunk 11 percent in the first week and 18 percent the second, before 2.5 percent more space became available the in third week, according to SeaIntel.

Heading into the Chinese New Year, trans­Pacific spot rates measured by the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index to the West and East Coasts are 77 percent and 55 percent higher than the week before the lunar celebration last year, respectively. The current spot rates to move a 40­foot­equivalent unit from Asia to the US East and West Coasts are both higher than many of the 2017­2018 contracts carriers are trying to secure from major retail BCOs.

The rate to the West Coast is $2,167 and the East Coast rate is $3,647, while carriers are seeking to lock down annual contracts, which generally run from May 2017 to May 2018, in the range of $1,600 to $1,800 per FEU to the West Coast and about $2,450 per FEU to the East Coast, according to conversations with carriers, shippers, and consultants.

After some major shippers signed contracts last season for as little as $750 per FEU to the West Coast, contributing to the billions of industry­wide losses in 2016, carriers are putting on the pressure. Some carriers, for example, are asking shippers for rates $100 to $300 higher than what was being shopped around in late December and early January, arguing they can lock down rates now or risk higher costs once they get alliance network details.

The Ocean Alliance has detailed nearly all its port rotations, but THE Alliance hasn’t disclosed specific ports for network placeholders, such as “South China/Hong Kong,” “Los Angeles/Long Beach,” and “Caribbean Hub,” according to SeaIntel. The analyst expects the network of the 2M, now with a Hyundai Merchant Marine partnership component, to remain unchanged.

Depending on the relationship with the customer, how the contract is structured, and how much volume is committed, carriers may settle for West Coast rates of $1,000, and $2,300 to the East Coast, a container line executive told JOC.com last week on the condition of anonymity. Still, these are hardly major advances, considering a $1,600 to $1,700 rate was once considered poor, the executive said.

Whether carrier discipline will hold is unknown, but they do have some momentum. The capacity cuts that have been made, and are to continue, have helped prop up spot rates, according to data from Xeneta. The rate management platform looked at the spot rate developments around Chinese New Year 2016 compared with this year and found that on the day before the Chinese holiday began, the market average spot rate in 2017 was almost double that of 2016.

On the Asia­North Europe trade this year, the market average rate the day before Chinese New Year on Jan. 27 was $2,301 per 20­ foot ­equivalent unit compared with $1,057 on the same day the year before. By March 7 in 2016, the market average spot rate had plunged to $695 per FEU.

It was the same picture on the Asia­Mediterranean trade. On Jan. 27 2017, the market average was $2,057 per TEU, while it was $861 per TEU on the same day just before the Chinese New Year in 2016. The spot rate had declined to $504 per TEU by March 7.

Patrik Berglund, Xeneta CEO, said how the short­term market developed after the Chinese New Year would be important. Noting that carriers have shown capacity discipline in the past only to fold later, Berglund told JOC.com that this time around alliances have all trimmed capacity at generally equal levels, boding well for a measured approach — at least in the short term.

“If, as we’ve seen historically, it plummets quickly after that then it might very well rapidly change from a seller’s to a buyer’s market again,” he said. “If it sticks, the shippers sitting on the fence, waiting for Chinese New Year to blow over might have lost out on the opportunity to contract, as they’ve done historically, according to the calendar year for Europe and then, as quickly as possible, for the trans­Pacific corridor.”

Contact Greg Knowler at greg.knowler@ihsmarkit.com

Contact Mark Szakonyi at mark.szakonyi@ihsmarkit.com