Transpacific headhaul rates and demand overheat ahead of next month’s Chinese New Year holidays, with carriers failing to honour contracts and guaranteed slots only available at prices far higher than listed spot rates.
Transpacific ocean freight markets are showing no sign of cooling down as supply chain bottlenecks, equipment shortages, and a lack of capacity keep ocean logistics capacity tight and prices high.
Klaus Lysdal, the US-based vice president of operations at iContainers, told Lloyd’s Loading List the build-up to next month’s Chinese New Year holidays on the transpacific headhaul trade into the US was as “insane” as the latter months of 2020, with carriers failing to honour contracts and guaranteed slots only available at prices far higher than spot rates listed in public indexes.
“Maybe some large BCOs (beneficial cargo owners) are getting carriers to honour some of their allocation at agreed rates, but not all of it,” he said. “When Microsoft are out there paying premiums and they’re still not able to move all their cargo, then smaller companies don’t stand a chance.”
Brian Bourke, chief growth officer at Seko Logistics, told Lloyd’s Loading List he expects the market to get worse before it improves.
“This is mostly due to an equipment shortage and imbalance versus capacity at this point,” he said. “It is for this reason that we see this extending past the Chinese New Year holiday as it will take a while to rebalance global equipment – containers and chassis.”
Spot rates Shanghai to New York surged 24% last week to $6,385 per FEU, according to Drewry, up 148% year-on-year.
Spot rates from China to the US West Coast have been stalled at around $4,000 per FEU for months, not least due to pressure since mid-September from Chinese regulators.
However, multiple sources told Lloyd’s Loading List that no slots are available before Chinese New Year holidays at the $4,000 per FEU mark into the US West Coast without paying substantial premiums and/or surcharges to guarantee space.
“Those spot rates are purely theoretical,” said one forwarder with a strong presence in China. “You might be promised that rate but nothing is moving unless you pay thousands extra for the space and/or the box.”
Lysdal told Lloyd’s Loading List: “If you pay enough then you can always find a way, but you have to pay a premium to get any kind of space. Our allocation contracts with carriers are rendered useless right now. They are not enforceable, which can be difficult to explain to customers.”
Challenges elsewhere in Asia
According to Lysdal, the difficulty in securing slots and equipment in China was also now apparent at load ports in other parts of Asia. “We were quoted an extra $3,000 for one box shipping out of Vietnam for a guaranteed slot on one of the last sailings at the end of January on top of the spot rate of around $4,500 or thereabouts,” he said.
Most cargo was also subject to delays and rollovers, making it difficult to plan supply chains. “There are delays before arrival and then at ports here in the US, particularly at Los Angeles,” he said.
“Vessels are docking and then are delayed unloading. Getting the container is taking a few days longer than normal, then you can’t get chassis so you can’t move them out. We’ve had cases where it has been weeks from the vessel arriving to getting the box out of port.”
US dry van rates were at five-year highs from August onwards last year as carriers refused to take on additional loads under contracts, forcing shippers into the spot market, Dean Croke, Principal Analyst at DAT iQ, told Lloyd’s Loading List.
“Higher contract rates negotiated for 2021 should draw carriers away from the spot market as they seek more lane density/balance in the contract market, something that was missing for most of 2020,” he said. “We expect spot rates will decline as a result but unlike in recent years, they’re decreasing from a record high level.”
Even with trucking rates at historical highs, however, Lysdal said availability remained an issue. “Trucking availability is also non-existent right now,” he said. “In LA, truckers are telling us to book three weeks in advance, but that’s difficult when you don’t know when the vessel will arrive and the box will be available.”
Lysdal is hoping a traditional drop-off in demand post-Chinese New Year might help take pressure off supply chains.
“I hope it gets better after Chinese New Year and we can start to see some improvement and things start to take a few steps in the direction of normal,” he said. “But I think with all the backlogs, it’s going to take time.
Fewer blank sailings
“Carriers are not cancelling as many sailings as they normally do, so hopefully that will help them get catch up with demand a little bit. I know it’s beneficial for them that the rates are as high as they are right now, but it’s not sustainable.”
Even so, he does not expect spot rates to collapse like they might have done previously now that carriers have established how to restrict supply when demand drops to ensure profitability.
“I think they have learned the lessons of the past,” he said. “Now that there’s fewer of them, they can better stand their ground rather than fight for market share. I think they understand how to control supply better with blank sailings now.”
Lysdal said from a forwarder’s viewpoint, high rates were not the main issue. “The most important part for us is that we’re able to provide a service to our clients,” he added. “Right now, that’s incredibly difficult because you cannot promise anything.
“Nobody benefits if the carriers are losing money and cutting service standards. We want market stability at rates where everyone can make money.
“Right now, the lines and truckers are making money but the rest of us need more stability.”