US importers and exporters should anticipate increased blank sailings in the coming weeks as carriers respond to declining imports from Asia and the seventh consecutive week of spot-rate declines by attempting to match capacity with demand in the eastbound Pacific.
Not only is capacity and demand forecast to be in relative balance this year, but carriers have become better at adjusting capacity to demand, Philip Damas, head of Drewry’s Supply Chain Advisors, said March 4 at the 2019 TPM Conference in Long Beach. Carriers have already announced 35 blank sailings through February and into early March, including 22 to the West Coast and 13 to the East Coast, compared with 11 last year, while ocean reliability fell to 40 percent in January, according to SeaIntelligence Maritime Consulting. Maritime analyst Alphaliner in its March 6-12 newsletter noted that the Ocean Alliance of APL/CMA CGM, Cosco Shipping, OOCL, and Evergreen canceled 10 additional trans-Pacific sailings for March-April.
“This is the strongest sign of discipline by carriers we have seen since 2010,” Damas told TPM 2019.
US imports from Asia in January-February totaled 2.73 million TEU, down slightly less than 1 percent from 2.75 million TEU in January-February 2018, according to PIERS, a JOC.com sister product within IHS Markit. The decline points to a weak first quarter, which is not surprising given that retailers and manufacturers front-loaded spring season imports in late 2018 to avoid paying the Trump administration’s threatened 25 percent tariffs on imports from China.
The spot rate from Shanghai to the East Coast this week was $2,357 per FEU, down 4.9 percent from last week but 26 percent from the recent high of $3,187 on Jan. 18, and the West Coast rate was $1,345 per FEU, down 6 percent from last week and 36 percent from Jan. 18, according to the Shanghai Containerized Freight Index (SCFI) published in the JOC Shipping and Logistics Pricing Hub.
While spot rates normally decline at this time of year following the closure of factories in Asia for the Lunar New Year holiday, which fell on Feb. 5 this year, the East Coast rate was still 17.3 percent higher than in Week 11 in 2018, and the West Coast rate was 32.4 percent higher, according to the SCFI.
Most of the projections for the eastbound trans-Pacific call for low single-digit growth in imports from Asia and about the same total capacity as last year. In the first two months of 2019, imports declined about 1 percent compared with January-February 2018, according to PIERS.
Liner capacity in the trans-Pacific will remain flat in 2019, according to Alphaliner. “This year, the carriers’ cautious approach marks the first time since 2009 that no new trans-Pacific services are to be introduced on the route for the summer’s peak shipping season,” the ocean carrier research firm stated. The number of weekly services from Asia to the West Coast beginning in April will actually be reduced to 36 from 37, and the three vessel-sharing alliances will keep their existing services to the East Coast in tact, said Alphaliner.
Drewry forecasts global liner capacity increasing 2.5 percent this year and global demand increasing 4 percent, Damas said. Carriers historically have added several percentage points of capacity on the trade each year, exceeding demand growth in an already oversaturated market.
Carriers last summer and autumn managed capacity on an almost month-by-month basis, cancelling sailings when bookings were weak and deploying extra-loader vessels when demand spiked. Uffe Ostergaard, president, North America, at Hapag-Lloyd, told TPM he expects eastbound trans-Pacific volumes to grow 3.9 percent over 2018.
Carriers and their customers have both said they want to avoid the volatility and uncertainty that dominated pricing for much of 2018. Disappointed by the low rates they negotiated in their annual 2018-2019 contracts, carriers last summer suspended three weekly strings to the West Coast, reducing total capacity about 6 percent, and one weekly service to the East Coast, reducing capacity 1.3 percent.
When imports surged later in the summer before 10 percent tariffs on imports from China took effect in September, hundreds of shipments were unable to be loaded onto the vessels for which they were booked. Spot rates at the time soared to five-year highs of $3,739 per FEU to the East Coast and $2,606 per FEU to the West Coast.
A second spike in imports occurred in November-December as importers rushed to get ahead of the threatened 25 percent tariffs on Jan. 1. US and Chinese negotiators delayed the tariffs and counter tariffs until March 2 and have delayed them again as the two sides attempt to put an end to the trade war.