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