September volumes into US East and Gulf coasts were below the 9% year-to-date trend, but recent data shows that demand rebounded very positively in October, Drewry highlights.
Container lines have done a far better job of managing capacity on the Asia-ECNA route than for other East-West trades, discipline that has been rewarded with much higher freight rates – which could be retained assuming they adopt a wait-and-see approach regarding the effects of January’s hike in US-China tariffs and lines look to protect the gains by removing some tonnage if necessary, Drewry reports.
Tighter space conditions have raised the freight rate premium on Asia-East Coast North America (ECNA) services, with future capacity decisions likely be dictated by the fallout from the 1 January US-China tariffs, according to analysis by Drewry.
Containerships on the Asia to East Coast North America trading lane are “currently full to brimming, providing carriers with a nice bounty in the form of greatly inflated spot market freight rates, which are currently more than twice the amount they were this time last year”, the container shipping analyst said.
As reported in previous analysis of the Asia-West Coast North America trade, Drewry said the transpacific market has this year been thrown into a state of confusion thanks to the US-China trade war, “creating an unpredictable playground for carriers and shippers alike as normal shipping patterns have deviated somewhat to instead follow each new tariff raising deadline”.
While the typical trade seasonality may have been artificially and temporarily distorted, making it harder than ever to predict monthly demand and subsequent capacity requirements, “there can be no denying the underlying strong demand that exists in the Asia-ECNA trade, helped by the rising US dollar and economy”, it added. The latest available import data for all of ECNA (US, Canada and Mexico) shipments from Asia show that demand was up by around 9% year-to-date after nine months of 2018, it highlighted.
September’s volumes into the US East and Gulf coasts combined was significantly below that trend – “quite possibly an overhang from cargoes moved well in advance of the latest tariff deadline of 24 September” – but more recent US-only data from PIERS shows that demand rebounded very positively in October, rising by nearly 11% year-on-year, Drewry highlighted, adding: “It would appear that a number of shippers have already decided to bring shipments forward to beat the much steeper tariff hike of 25% due 1 January 2019. The danger for carriers is that more cargoes now will equal fewer shipments in the first quarter when annual contract talks commence.”
This year will deliver the highest growth rate for the Asia-ECNA trade since 2015 (+16%), when more cargoes were induced to that side of the US at the expense of the West coast in anticipation of the Panama Canal expansion, Drewry pointed out.
“Despite the uncertainties caused by the trade war, carriers can be satisfied with their capacity allocation work on this trade,” it added. “Eastbound ships have been at, or close to, full utilisation since June, providing a perfect platform to raise spot rates.
“Making this achievement more impressive is the fact that it has occurred at the same time as significant upsizing of ships. Load factors can often take a hammering during the cascading process, but at least as far as the Asia-ECNA route is concerned it has been a painless experience for carriers.”
Excluding missed sailings, the average size of containerships deployed on Asia-ECNA was 8,950 teu as of October 2018, an increase of nearly 17% compared to the same month a year ago, Drewry pointed out. The number of weekly services in the trade available to shippers has reduced by one from 19 to 18 during that period, but there are now 48 ships of at least 10,000 teu deployed versus 27 in October 2017.
It said the reduced number of services was a recent development that follows the start of a seven-year strategic Asia-US East Coast co-operation between 2M carriers Maersk Line and MSC with Zim in September. “Initially, it was thought that the agreement would remove two strings from the trade as it covered five loops instead of the previous seven independent operations, but it transpired that 2M maintained its US Gulf-focused TP18/Lone Star Express (10 x 6,500 teu units) outside of the agreement,” Drewry explained.
Ultimately, there was very limited net change in terms of headhaul slots after the service suspension and upsizing with October’s total only down by 2.5% over August and still up around 7% on the same month last year. Moreover, October’s capacity was reduced by a few missed sailings to cater for the post-Chinese Golden Week demand lull, it added.
“We expect to see November’s eastbound capacity rise back to full strength by the time we finish collecting the data from carrier schedules as there is clear evidence of continued high demand in the trade.” Drewry’s World Container Index for Shanghai to New York last week registered a small rise of $12 per 40ft container to build on a more substantial GRI-induced spike of $360/40ft two weeks prior.
While the latest weekly increase was modest, it does contrast favourably with a sharp fall of around $250/40ft seen on the Shanghai to Los Angeles leg, Drewry highlighted. “Having shrunk to approximately $700 in October, the East Coast price premium over the West Coast has since doubled over the space of a few weeks. The introduction of larger ships to the West Coast trade that until some summer service suspensions had substantially weaker ship utilisation rates is a possible reason for the recent divergence.”
As also reported today in Lloyd’s Loading List, Maritime Strategies International (MSI) says transpacific volumes overall continued to surge in September and October with 10% and 7% year-on-year growth recorded, but MSI said there were now signs the headhaul trade was running out of steam ahead of tariff hikes on 1 January.
It believes there is the potential for one last push on the transpacific in early-to-mid December, but the recent export surge “is very likely on its last legs”, said the analyst.
However, it noted that this is most evident on US West Coast-bound cargo so far, where extra loaders and vessel upsizing have, in combination with slowing volume growth, loosened market balances. “With further slowing highly likely as much of this volume growth was driven by tariff front-running, carriers will need to rein capacity back in over the coming quarters to enter the annual contracting season in a solid position,” MSI said.
Drewry concluded: “Carriers have done a far better job of managing capacity on the Asia-ECNA route than for other East-West trades, rewarded with much higher freight rates. We suspect that they will adopt a wait and see approach with regards to the January tariffs and will look to protect the gains by removing some tonnage if necessary.”