New extra-loaders put downward pressure on trans-Pacific rates

New extra-loaders put downward pressure on trans-Pacific rates

Carriers continue to send mixed messages as they respond to the uncertainties over four rounds of tariffs on imports from China by the Trump administration this past year. Photo credit: Shutterstock.com.

New extra-loaders on the trans-Pacific will test the potential for a rebound for eastbound spot rates. 

Cosco Shipping and OOCL on Aug. 5 launched a 10-week peak-season (August 5-October 6) service linking southern China with Long Beach, according to maritime analyst Alphaliner. The service by the sister companies deploys vessels with an average capacity of 4,365 TEU on a Hong Kong-Yantian-Long Beach-Hong Kong rotation.

Cosco and OOCL will also run one extra-loader vessel to the US East Coast on Sept. 9. That single sailing, with a capacity of 6,892 TEU, will call at Hong Kong, Yantian, New York, Savannah, Charleston, and Miami. The carriers’ partners in the Ocean Alliance — CMA CGM and Evergreen — are not involved in the peak-season service or in the extra-loader sailing, Alphaliner said.

In past years, carriers and alliances would often deploy peak-season-only services and extra-loaders on the Asia-US trades without fear of spawning over-capacity and falling spot rates. However, the year-long US-China trade war is taking a toll on spot rates. 

US containerized imports from Asia in the first half of 2019 were up 1.4 percent, but imports from China were down 5 percent compared with the first six months of 2018, according to PIERS, a JOC.com sister company within IHS Markit. Spot rates in the eastbound Pacific are down 29 percent from last year, according to the Shanghai Containerized Freight Index published under the JOC Shipping and Logistics Pricing Hub.

The differential could increase in the weeks ahead because spot rates last year continued to increase during the peak season, topping out in November at $3,739 per FEU to the East Coast and $2,606 to the West Coast. This year, though, industry analysts are predicting a modest, if not weak, peak season.

Carriers continue to send mixed messages to the trade as they respond to the uncertainties over four rounds of tariffs on imports from China by the Trump administration this past year. Carriers in the second quarter announced 31 blanked sailings. That compares with 18 in the second quarter of 2018, according to Alan Murphy, CEO and co-founder of Sea-Intelligence Maritime Consulting. 

Conversely, Maersk Line, Mediterranean Shipping Co., and Cosco announced they would deploy six extra-loader vessels to the West, East, and Gulf coasts in July-August. Since the extra-loaders operate in two directions, they are increasing capacity in both the eastbound and westbound trans-Pacfic at a time when spot rates in both trades are softening.

The bottom line for beneficial cargo owners (BCOs) is that a mixture of blanked sailings and extra-loaders reflects a renewed sense of discipline among carriers in their attempts to respond nimbly to the weekly ups and downs in cargo volumes. BCOs should expect this strategy to continue, Philip Damas, head of Drewry Supply Chain Advisors, told the TPM conference in March in Long Beach.

Alphaliner noted that further weakness in the eastbound trans-Pacific is likely in the coming weeks with the latest round of Trump administration tariffs scheduled to take effect on Sept. 1 on $112 billion of imports from China not already under tariff. The 10 percent tariffs are scheduled to be extended to another $160 billion of imports effective Dec. 15. That will result in about 97 percent of all US imports from China being under tariffs ranging from 10 percent to 25 percent by the end of the year, Alphaliner stated.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo