Blankings, imports boost trans-Pacific spot rates

Blankings, imports boost trans-Pacific spot rates

NVOs expect this week’s spike in imports to be followed by declining volumes in May and June. Photo credit: Shutterstock.com.

Spot rates in the eastbound trans-Pacific rose this week, driven by a spike in blank sailings that restricted vessel capacity and what is expected to be a temporary surge in US imports from Asia.

The West Coast spot rate was up 12.8 percent from a week ago to $1,724 per FEU. The East Coast spot rate gained 5.2 percent to $2,773 per FEU, according to the Shanghai Containerized Freight Index (SCFI) published under the JOC Shipping & Logistics Pricing Hub.

The combination of rising volumes and capacity reductions on vessels leaving Asia contributed to the rising spot rates this week, Jon Monroe, a consultant to non-vessel operating common carriers (NVOs), told JOC.com on Friday.

“Space is certainly tight, but volumes are strong,” he said, noting that cargo demand during the COVID-19 pandemic has varied widely by product category. Products such as furniture and luggage have been hit hard by stay-at-home mandates in a number of states, but a variety of imports that are sold online or are used in everyday life are still moving, he said.

Christian Sur, executive vice president of sales and marketing at the global forwarder Unique Logistics International, said the temporary spike in volume is typical for this time of year as annual service contracts in the eastbound trans-Pacific expire. However, he expects imports will drop soon, given the destructive impact of the coronavirus disease 2019 (COVID-19) on consumer demand in the US.

“There’s always some kind of rush before May 1,” Sur told JOC.com Friday. He said demand for essential goods will likely remain strong in the short-term, but demand for non-essential products will not return anytime soon.

May 1 is not a hard deadline for annual service contracts because carriers are normally flexible about granting two- or three-week extensions to beneficial cargo owners (BCOs) and NVOs in order to wrap up the final details in contracts. BCOs and NVOs say they have once again received contract extensions this year when they requested extensions.

Nevertheless, some BCOs attempt to ship as much as they can before May 1 because they do not know how carriers will address the ocean rate in the next contract. Depending on market conditions, the carrier may agree to extend the existing contract at the current rate. Conversely, the carrier may agree to extend the contract only if the customer pays a higher rate.

But while the start of May 1 may have triggered some cargo uptick, the supply chains of cargo owners are increasingly tuned to advance planning, and it’s generally difficult to plan manufacturing orders to meet shipping schedules far in advance.

Carriers slash capacity as imports slide

 Conditions in the trans-Pacific this year due to COVID-19 resulted in a 21.5 percent decline in US imports from China in the first quarter, according to PIERS, a JOC.com sister company within IHS Markit.

Carriers have responded to the large drop in US imports from Asia through blank sailings, cutting capacity about 25 percent to the West Coast and 20 percent to the East Coast in weeks 17-19 (April 19-May 9), according to Sea-Intelligence Maritime Consulting.

US gross domestic product shrank 4.8 percent in the first quarter, according to data released by the US Bureau of Economic Analysis Thursday, while some economists are projecting a double-digit decline in Q2, indicating import volumes overall in May and June will most likely decline, Sur said.  

“Overall, I expect [volume] to fall off in May and June. The second quarter will be the worst ever,” he said.

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