‘Significant’ transpacific ocean freight price rise expected in early November

Mid-month transpacific price rises have held this week, and early indications are that carriers will seek $250-$300 West Coast price rises and $350-$400 East Coast price rises next month, digital rates specialist Freightos says.

Early indications suggest container lines are looking for price rises of 15-20% in early November on transpacific ocean freight trades, according to digital rates specialist Freightos, although West Coast prices will still trail last year’s rates by more than 35%.

The latest Freightos Baltic Index container price update notes that China-US West Coast prices are virtually unmoved from last week at $1,365/FEU, 4% up on 2017 prices “but well behind (46%) last year’s frontloading-driven high prices”. China-US East Coast prices are stable at $2,688/FEU. Less affected by advance shipping, the gap on last year’s prices (18%) is narrower than the West Coast, but they are 56% up on 2017 and 5% up on 2016, Freightos highlighted.

“Mid-month price rises on both transpacific lanes have held this week, a sign that demand is up, carriers have supply in check, and that peak season, while not high, is not a total washout,” commented Eytan Buchman, chief marketing officer at Freightos. “The first week of November was when prices peaked for the season last year, driven by holiday sale stocking and a looming China trade tariff change.

“The same conditions apply this year, with importers having had plenty of lead time to frontload before 15 December’s tariff change. In other words, expect a significant price increase in the first week of November.

“Early indications are that carriers are looking for West Coast price rises in the $250-$300 range and East Coast price rises in the $350-$400 range. That would convert to 20% and 15% increases, respectively. Of course, West Coast prices will still trail last year’s rates by more than 35%.”

In an article published today in Lloyd’s Loading List, Klaus Lysdal, vice president of operations at digital freight forwarder iContainers, said there have been “rather mixed views and signals about how the ocean freight industry will see out the year”, but he was expecting “a weaker-than-usual fourth quarter for US ocean freight, with much of it due to uncertainty”. He described the US-China trade war, Brexit, a slowing global economy, and the IMO 2020 regulation as “the main culprits of the incertitude and wariness that have been sweeping across the industry for over a year now”, with 2018 and 2019 “truly tumultuous years for importers and exporters”.

As reported yesterday in Lloyd’s Loading List container trades between Asia and the west coast of North America are still struggling to ward off the impact of the trade war between China and the US, according to container shipping analyst Drewry. Despite providing a welcome boost for carriers last year, as front-loading ahead of the imposition of tariffs lifted volumes, the artificial stimulation of shipments has since regressed, the analyst said.

“After eight months, loaded traffic from Asia to the west coast of North America, covering the US, Canada and Mexico, had shrunk by nearly 3%,” it said. “The slack was at least picked up by the smaller Asia to North America east coast route, which increased by almost 6% to produce a flat total net result for the year-to-date period.”

Recent US-only data confirmed the trend, Drewry noted, with west coast volumes falling 5.8% compared with 6.9% growth at east and Gulf coast ports.

But the “extraordinary environment” in which carriers on the transpacific were operating made it difficult to evaluate actual trading performance this year, it said, adding that it expected growth to return in the “not too distant future”.

“The transpacific has thus far managed to avoid significant contraction thanks to a combination of factors, including a weakening of the Chinese currency, willingness from some Chinese exporters and American importers to absorb some of the additional costs arising from the new tariffs and some trade substitution within Asia,” said Drewry.

But ultimately, it was the strength of the US economy that would serve to drive growth again. “The underlying strength of the US economy hasn’t been derailed by the Washington and Beijing shenanigans and has continued to create jobs and raise incomes throughout,” the analyst said.

Nevertheless, this year’s peak season had failed to deliver for carriers, with data indicating a 1% decline in volumes from Asia to the US west coast in the third quarter.

Carrier efforts to ameliorate the slowdown by blanking sailings and withdrawing tonnage helped keep load factors up, but these “artificial supply manoeuvres” were not enough to raise spot freight rates, which have been stuck at around $1,500 per feu, according to Drewry. Last week’s Shanghai to Los Angeles World Container Index was down by 47% on the same week last year, it added.

“The immediate outlook for the transpacific is heavily tied to the trade war, which is currently in one of its more peaceful settings but is still liable to sour at any moment,” Drewry said. “Assuming carriers refrain from returning too much capacity, there is a reasonable hope for higher freight rates as we approach Black Friday and Christmas sales.”

Source: Lloyd’s