Trans-Pac spot rate drop underscores modest peak forecast

Trans-Pac spot rate drop underscores modest peak forecast

Carriers have positioned themselves for a soft August-October peak season by blanking a record 31 sailings in the eastbound trans-Pacific in the second quarter. Photo credit: Shutterstock.com.

A drop in eastbound trans-Pacific spot rates — putting them down 29 percent from last year — and signs of weakening consumer confidence after record blanketed sailings in the second quarter underscore analysts and carriers’ expectations of a modest to weak peak season. 

The spot rate to the West Coast this week was $1,368 per FEU, down 7.2 percent from last week and 28.7 percent lower than the same week last year, according to the Shanghai Containerized Freight Index (SCFI) published under the JOC Shipping & Logistics Pricing Hub. The East Coast rate was $2,543 per FEU, down 4.4 percent from last week and 14.2 percent lower year over year.

Also on Friday, the University of Michigan consumer confidence preliminary reading for August was 92.1, versus an expected reading of 97. It was the lowest indicator readout since the beginning of the year. 

Carriers have already positioned themselves for a soft August-October peak season by blanking a record 31 sailings in the eastbound trans-Pacific in the second quarter, according to SeaIntelligence Maritime Consulting. Alan Murphy, CEO and co-founder, said that was down from 18 void sailings in Q2 2018, and an average of 16 blank sailings in the second quarters of 2013-18.

Containerized imports from Asia in the first half of 2019 increased 1.4 percent, but imports from China were down 5 percent year over year, according to PIERS, a JOC.com sister company within IHS Markit.

Global Port Tracker, published monthly by the National Retail Federation (NRF) and Hackett Associates, projects a slight increase in imports of 0.6 percent in August year over year. Imports are projected to decline 1.1 percent in September and then 6.2 percent in October. An increase of 1.8 percent is projected for November and then a 7.9 percent decline from an unusually strong month for imports in December 2018.

It appears that the uncertainties surrounding the three rounds of Trump administration tariffs on imports from China the past year have affected how imports placed their purchase orders with factories in Asia, and the timing of some shipments. However, carriers have reacted nimbly to the fluctuating container volumes.

During its second quarter earnings call on Wednesday, Maersk Group CEO Søren Skou said that despite the uncertainties that beneficial cargo owners (BCOs) have dealt with this past year during the United States-China trade war, carriers such as Maersk have found conditions in the trans-Pacific to be “quite manageable” so far.

The trade environment has been volatile and complex due to fluctuating exchange rates. The stronger dollar against the renminbi (RMB) reduces the impact of tariffs on the price of imported goods, Skou noted. The RMB has weakened more than 10 percent against the US dollar since mid-2018.

Blanking sailings

As they did last year, and will continue to do this year, carriers are blanking sailings in weeks when bookings taper off, and they will add extra-loader vessels to handle surges. The blank sailings impact all BCOs in the trade lane where they occur, and they normally eliminate sailings by vessels of 10,000 TEU-plus vessels.

Extra-loaders, however, are single sailings with vessels of half that size, and they are usually reserved for the largest retailers. Maersk, Mediterranean Shipping Co., and Cosco Shipping announced that they will deploy six extra-loader vessels this summer in the eastbound trans-Pacific.

Still, carriers’ management of capacity in the largest US trade lane in what should be the busiest time of the year has not been able to stem a slide in spot rates this summer. The West Coast rate peaked on June 28 at $1,720 per FEU, and the East Coast rate peaked on July 19 at $2,891 per FEU, according to the SCFI. 

The NRF on Thursday reported that retail sales in July were up 0.9 percent over June, and 5.6 percent higher than in July 2018. Those numbers exclude automobile, gasoline, and restaurant sales. However, while consumers were still spending in July, NRF chief economist Jack Kleinhenz stated: “Today’s data is looking backward at what was happening a month ago. The impact of volatile financial markets and increased trade tensions in recent weeks may put a wind of caution in consumer spending as we move forward in 2019.

Additionally, this week the Trump administration delayed from Sept. 1 until Dec. 15 a 10 percent tariff on some, but not all, of the $300 billion of US import products from China not already under tariff.   

Cell phones, laptops, and video game consoles will be spared for now, but thousands of food, clothing, and other products will still pay the 10 percent tariff on Sept. 1.

BCOs say it is too late to change sourcing and shipping patterns for the Sept. 1 tariffs, so they are not expected to have an impact on import volumes over the next three months. However, the impact could be felt by consumers in the form of higher prices for the tariffed items. 

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