East-west rates rise ahead of Lunar New Year

East-west rates rise ahead of Lunar New Year

East-west spot rates are on the rise. Photo credit: Shutterstock.

Spot market freight rates on the major east-west trades continue to rise in the run up to the Lunar New Year in advance of a sweeping set of rate increases scheduled for early February, mostly on the trans-Pacific.

The Shanghai-US East Coast trade rose $183 or 7.6 percent per FEU this week, taking the rate to $2,608, according to the latest reading of the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index. Spot rates on Shanghai-US West Coast rose $49 or 3.3 percent to $1,514 per FEU. All the weekly rate movements can be found at JOC.com's Market Data Hub.

Several of the major carriers in the Pacific have announced proposed rate hikes of $700 to as much as $1,000 per FEU, with most increases scheduled for Feb. 1 or Feb. 3.

The East Coast rate is at a level the trade has not seen since August, but it is down 37.4 on the rate in the same period last year when it hit $3,133 per FEU and kept climbing to $3,639 in the first week of February. It was a similar picture on the West Coast where year-over-year comparisons show the rate at this time last year was 31.5 percent higher. The rate was above $2,000 per FEU and remained there until the middle of February.

Drewry World Container Index has freight rates on Shanghai-Los Angeles decreasing by $60 per FEU this week to reach $1,411, and has rates on Shanghai-New York sliding by $13, to reach $2,440 per FEU.

The Lunar New Year was two weeks earlier in 2017 than it will be this year when China’s biggest holiday begins on Feb. 16, and the rate increases were supported by strong export volume, something the carriers are hoping to repeat this year.

Importers in the United States and Europe in the coming weeks will ramp up their shipments and restock their inventories, hence spot rates are expected to remain relatively strong, or even increase, as the Lunar New Year approaches. Factories close for at least a week over the holiday, but many remain shut for up to three weeks.

On Asia-North Europe, the spot freight rate edged up by $9 or 1 percent to $897 per TEU and has risen every week since Nov. 17. The Asia-Mediterranean spot rate rose $21 or 2.9 percent, and has risen for the last two weeks after remaining flat since mid-November. The incremental weekly rate increases illustrate the supply-demand imbalance on the trades to Europe where huge amounts of capacity are undermining rate increase efforts.

Data from IHS Markit, parent company of JOC, show that container volume growth on Asia to North Europe and the Mediterranean will strengthen through 2018, increasing by about 4.5 percent compared with 2017. However, the global container fleet is on track to grow faster, even after scrapping is taken into account and a quarter of the capacity is delayed. IHS Markit predicts demolitions in 2018 will total 351,065 TEU, which would result in net capacity growth in the global fleet of 7.1 percent if there is no further delay in the deliveries of 78 mega-ships of 10,000 TEU and above, totaling 1.2 million TEU.

In the face of the oversupply, Cosco Shipping will defer the delivery of 10 vessels with a total capacity of 166,576 TEU. Six of the ships are in the 19,000 to 21,000 TEU range. Yang Ming has also delayed three 14,000 TEU ships it was to have taken delivery of in 2018.

Alphaliner said the January surge in vessel deliveries of 250,000 TEU will be followed in the next four months by additional new ships with a total capacity of 790,000 TEU, all expected to join the world fleet between February and May. The ships will arrive in time for upgrades planned on various services of the 2M, Ocean, and THE alliances, but will also trigger a cascade of smaller, although still fairly large, ships into secondary trade lanes, such as South America, the Indian Subcontinent, and intra-Asian routes.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.