Trans-Pacific spot rates keep strength ahead of possible GRIs

Trans-Pacific spot rates keep strength ahead of possible GRIs

Port of Los Angeles.

“China trade tariffs drove an early start to the ocean trans-Pacific peak season, but with the latest tranche of China trade tariffs increasing to 25 percent on Jan. 1, demand remains high. Sailings are heavily booked until late November. Carriers are cashing in with Nov. 1 GRIs in the $100+ range,” said Zvi Schreiber in the weekly Freightos Baltic Indexes update. (Above: The Port of Los Angeles.) Photo credit: Shutterstock.com.

Importers of Asian merchandise this week continued to pay the highest spot rates they have experienced in the past five years, and they are bracing for the possibility of a general rate increase (GRI) of at least $100 per FEU that should be reflected in the rates this coming week.

Importers since summer have contended with the double threat of 10 percent Trump administration tariffs in August, followed by an increase to 25 percent scheduled to take effect on Jan. 1, 2019. The pending tariffs generated a front-loading of holiday season merchandise in late summer and early autumn. Now, the specter of 25 percent tariffs effective Jan. 1 is causing another round of front-loading of spring shipments that traditionally move in January-early February prior to Chinese New Year.

Demand for space remains high, carriers are cashing in

“China trade tariffs drove an early start to the ocean trans-Pacific peak season, but with the latest tranche of China trade tariffs increasing to 25 percent on Jan. 1, demand remains high. Sailings are heavily booked until late November. Carriers are cashing in with Nov. 1 GRIs in the $100+ range,” said Zvi Schreiber in the weekly Freightos Baltic Index (FBX) update.

The sustainability of the spot rate rally is evidenced by Drewry’s Hong Kong-Los Angeles Container Rate Benchmark. The spot rate of $2,571 per FEU marked the 14th straight week the index was above $2,000 per FEU, and the third consecutive week the Hong Kong-Los Angeles rate stood at $2,571 per FEU.

Spot rates from China to the US East Coast have been on a similar  trajectory, according to Freightos. This week’s rate of $3,288 per FEU, though down 2 percent from last week, demonstrates that carriers have maintained consistent pricing power since early August. To emphasize how uncharacteristic these elevated peak-season rates are, this week’s spot rates were 93 percent higher to the West Coast than in Week 44 of 2017, and 91 percent higher year over year to the East Coast. 

Rates have remained high despite a number of single-voyage “extra-loader” vessels that carriers are deploying to satisfy demand by beneficial cargo owners (BCOs) for space on vessels leaving Asia. Carriers this week and next are deploying four extra-loaders of substantial size, with capacities of 6,500- to 7,400-TEU capacity.

Bigger ships ahead

In another development that could continue to elevate capacity through the end of the year, Maersk Line this week announced that on its TP Pearl service from South China it is upsizing two vessels of 13,568-TEU capacity to 17,816-TEU capacity. These will be the largest vessels calling at West Coast ports since 2016 when CMA CGM tested the ability of terminal operators in Los Angeles-Long Beach, Oakland, and Seattle-Tacoma to handle the 18,000-TEU Benjamin Franklin — one of a new generation of mega-ships.

There is still the possibility that the Jan. 1 tariffs of 25 percent may not take place, as the presidents of the US and China were scheduled to meet at the end of November, but that meeting may be held on Dec. 1. Nevertheless, BCOs are obviously not waiting for the results of the meeting as they continue to ramp up their imports at least through November. The general feeling in the trade is that imports will remain unusually strong through the end of the year. The Global Port Tracker published monthly by the National Retail Federation and Hackett Associates projects strong retail sales growth of more than 4 percent during the holiday season, which could lead to an early restocking of merchandise before Jan. 1. After that, the consensus among industry analysts is building for a sharp drop in imports in January, and with that drop spot rates will also decline.

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

Comments

Lots of buzz and higher rates for carriers for several weeks - for the spot market. The question is, how much of their lift is spot market vs Service Contracts? Nice to have $2500-2700 rates to West Coast, and even a premium on "guaranteed no rolls". But if it only applies to 30% of the lift? - better than nothing for sure. But no one is talking about the volumes and percentages of spot market cargo. The 4th quarter financials will reveal some of it, but that is 3 months away. And the Maersk 17,000 teu ships coming to the US, if they are anywhere near filled -- how do they unload those if they use all of the top tier space? And the ILWU's "28 moves per hour, per crane", wow. Maersk was discussing vessels in ports for a week, the 17,000 teu ships, if filled, may take a week to unload and load out. , One way to soak up capacity, have it sit in ports.