Spot rates from Asia to the United States declined for the third consecutive week, sending a strong signal to ports, carriers, and beneficial cargo owners (BCOs) that there will be no surge of merchandise imports in peak season 2019.
The direction of spot rates this autumn is in sharp contrast to last year when the peak season began early — in July — and lasted through December as retailers front-loaded imports to stay ahead of Trump administration tariffs on imports from China. This autumn, imports have been unable to build momentum, which is reflected in general rate increases (GRIs) that take effect one week, but deteriorate rapidly in subsequent weeks.
The spot rate to the West Coast this week was $1,338 per FEU, down 7.5 percent from the prior week and 42.9 percent lower than $2,343 per FEU in Week 38 last year. The East Coast rate was $2,351 per FEU, down 6.6 percent from last week and 32.9 percent lower than $3,502 in Week 38 last year, according to the Shanghai Containerized Freight Index (SCFI) published under the JOC Shipping & Logistics Pricing Hub.
Spot rates increased around the first of each month over the past three months, in line with carrier-announced GRIs, only to fall apart almost immediately. Rates most recently peaked on August 30 at $1,615 per FEU to the West Coast and $2,691 to the East Coast, according to the SCFI.
Flat to low-single digit growth projected
Speakers at the Intermodal Association of North America’s (IANA's) annual conference this week in Long Beach predicted that growth in ocean, intermodal, and truck freight would be flat to low-single-digits through the peak season and into 2020 due to the continuing trade war and the slowing US manufacturing sector.
Despite that sober analysis, Lars Jensen, CEO of Sea-Intelligence Maritime Consulting, told IANA, “the market is not going backward.”
Global Port Tracker, published monthly by the National Retail Federation and Hackett Associates, said in its Sept. 10 edition that year-over-year containerized imports are projected to decline 0.7 percent in September and 5.5 percent in October, before increasing 8.8 percent in November ahead of yet another round of Trump administration tariffs that take effect on December 15. Imports are then projected to decline 9.8 percent in December and 4.5 percent in January.
Front-loading of imports in late 2018, and several rounds of tariffs this year, have resulted in brief surges of imports followed by pullbacks. According to PIERS, a JOC.com sister company within IHS Markit, US containerized imports from Asia in the first half of the year increased 1.4 percent, then another 4 percent in July and 1 percent in August.
Imports from China declined 5 percent in the first half of 2019, according to PIERS. However, shifting sourcing patterns from China to Southeast Asia replaced some of the imports that were displaced, so the decline in imports from China did not have a significant impact on total demand in US imports from Asia, Jensen said.
He added that carriers will move aggressively in the coming months to prevent massive rate deterioration by blanking sailings as much as needed, something they will be able to do because the trans-Pacific trades are now dominated by three power carrier alliances. Carriers have already announced they will blank eight sailings to the West Coast and two to the East Coast in October.
Lunar New Year in 2020 falls on Jan. 25, with factories in Asia expected to close as they do each year, at least for a couple of weeks. In past years, the weeks leading up to Lunar New Year have seen increased imports and spot rates. Jensen noted, however, that if US retailers continue to draw down their inventories rather than replenish them following the holiday season, the pre-Lunar New Year surge may be muted.
If that is the case, experience from this past year with blanked sailings indicates additional blanked sailings could be on the horizon. This week’s Sunday Spotlight — published by Sea-Intelligence — gives an indication as to which services could be ripe for blanking. Alan Murphy, co-founder and CEO of Sea-Intelligence, said an analysis of the major east-west trade lanes shows that when blanking is called for, the alliances frequently void some sailings but rarely blank others.
Murphy said the Ocean Alliance (Cosco/OOCL, CMA CGM/APL, and Evergreen) service to Los Angeles is rarely blanked, and its East Coast service normally isn’t either, so BCOs “have a high likelihood of a disruption-free option available.” However, 2M (Maersk and MSC) and THE Alliance (ONE, Hapag-Lloyd, and Yang Ming) services to the West and East coasts have been subject to varying degrees of blanked sailings.