Seatrade-Maritime: Asia – US container rates could surpass pandemic peak

Published by Seatrade-Maritime

Sharp increases in freight rate levels on the Pacific trades could be followed by another attempt to raise rates in early October as carriers look to capitalise geopolitical disruption.

Both Drewry and Xeneta are forecasting higher spot rates on the Pacific, but Drewry believes this is due to efficient capacity management by the carriers. In contrast Xeneta argues that there are a number of drivers, including geopolitical challenges and Dynamar points to congestion caused by climate events.

Xeneta chief analyst Peter Sand said: “Carriers are seizing the opportunity while the market is hot, adding capacity into US East Coast ahead of what could be a turn in the market within the next two to three weeks. Offered capacity on the Far East to US East Coast trade is 6-7% higher in September than in August.”

Drewry’s Container Capacity Insight monitor, however, said that nine sailings have been cancelled for the coming week, an increase from eight cancellations the previous week.

“Drewry expects rates to rise slightly next week [week beginning 21 September] amid impending pre-Golden Week demand and continued capacity management by carriers.”

In its latest spot rate report, published 17 September, Drewry said Shanghai to Los Angeles spot rates increased 5% week-on-week to $7,712 per feu. Rates to New York saw a 7% rise to $10,394 per feu.

The consultant expects further rate increases in the run up to China’s 1 October Golden Week.

Freight rates near record levels

Meanwhile, Xeneta reported in its weekly rate newsletter that the spot rates to the US West and East coasts were, “Just 18% and 11% [respectively] short of the all-time high set during the Covid-19 disruption.”

As bunker prices are driving fuel surcharges to new highs, “Surpassing the pandemic peak cannot be ruled out, which would be an extraordinary market development.”

If the record is broken Xeneta believes it will be for charges to the US East Coast, however Sand argues that even if it is not, “the fact we are even discussing the possibility demonstrates how sensitive critical ocean container shipping trades are to geopolitical forces and how a regional conflict in the Middle East can have major implications at a global level.”

According to Xeneta attractive Pacific spot rates have seen carriers add capacity, in a bid to increase revenues before the market turns in the next two to three weeks, with offered capacity up 6-7% this month compared to August.

“We should expect one more freight rate push at the start of October as shippers rush cargo out of Asia ahead of the Golden Week shutdown, before rates start to soften, or at least the pace of growth will slow,” said Sand.

In addition to the economic fundamentals Dynamar analyst Darron Wadey highlighted the importance of weather-related disruptions that have had a lasting effect on the Pacific trades.

Chinese port congestion

A series of typhoons has disrupted operations, that outlasted the immediate impact of the storms.

Xeneta analyst Destine Ozuygur reported that there was 1.1 million teu at anchor around three Chinese gateways at the end of August. Average delays are expected to reach in excess of four days during this month; some 3.25 million teu was more than 10 days late with just 6% of Asia to Europe capacity meeting its scheduled arrival time last month.

“Each week of disruption often requires 1-3 weeks of recovery depending on port size and carrier strategy,” commented Ozuygur, and with four storms in quick succession there was little time for terminals to recover.

Moreover, Dynamar’s Wadey pointed to the increasing effects of El Niño on the draught at the Panama Canal, a critical chokepoint.

“The Panama Canal restrictions will also have an influence on the flow of goods,” said Wadey, “Redirecting trade flows to the US West Coast can only be a temporary solution otherwise congestion could appear in those gateways.”

Floating warehouses

Congestion will mean that ships become floating warehouses, as was the case during the pandemic, said Wadey.

“As we know, storage costs money and ships are perhaps the most expensive warehouses around,” he added, “This would already result in elevated rates were everything else to remain equal.”

Wadey, however, acknowledges that there has been “something of a rush” to beat various US trade measures that are either coming in or expiring in the near future.

According to Dynamar any slow down in the rate surge through Golden Week will be a mere “blip” in the broader context as the US looks at transhipment ports in terms of tariff charges.

Additionally: “A month after Golden Week ends, the 12-month truce on Chinese-built ships being charged to call US ports, and vice versa, comes to an end,” said Wadey.

He added that the disruption in the Middle East is affecting Europe and Africa too: “To borrow [a phrase] from popular culture, we really are seeing everything… everywhere… all at once. That makes any form of prediction or planning nigh-on impossible unless someone, somewhere, takes a lead.”