Ocean container rates remain exceptionally high but may have finally hit their ceiling. Spot rates have not only stopped rising, they’ve pulled back by single digits. Is this a new plateau or the start of a longer-term reversal as liner alliances bring more capacity back online?
Author: Greg Miller
Spot rates in the trans-Pacific trade continue to reach epic new heights, leading to talk of price gouging. “Container lines have done well during the global pandemic, but are they profiteering from the crisis?” asked U.K.-based consultancy Drewry.
The battle for Asian containerized exports rages on between West and East Coast ports. The East had been steadily gaining ground, but COVID-19 is changing the balance in favor of the West, at least in the short term. The most immediate effect of the coronavirus was a shift from air cargo to premium ocean service. Advantage West Coast ports. Former air-cargo shippers with time pressures don’t take the long route to the East Coast.
This will raise eyebrows no matter how innocently it arose: Carriers intentionally cut trans-Pacific sailings to align capacity with virus-stricken demand, but demand turned out to be higher than expected. Spot rates skyrocketed and some analysts now predict rates could fuel big profits for carriers in a year when U.S. importers face a pandemic-induced recession.
The Economic Co-operation and Development (OECD) has outlined two scenarios for COVID-19 economic fallout: “Single Hit,” in which the virus continues to recede and remains under control, and “Double Hit,” in which a second wave of infections erupts by year-end.
Politically, the U.S. and China are barely on speaking terms. Trade-wise, they’re still very much in bed together. Cargo from China is accounting for an even greater share of inbound container volumes than before the coronavirus crisis, according to the latest U.S. Customs data.
The U.S.-China Phase One trade deal is not dead, but it is on life support. And even though there has been no mention yet of new sanctions, the two superpowers’ deteriorating relationship could sway container demand.
After “blanking” (canceling) around 20% of Asia-to-U.S. capacity in May and June, it now appears likely that container-ship carriers will cut fewer sailings in July, possibly as low as 10%.
U.S. container imports are on a wild ride. They plunged in March after the initial coronavirus outbreak in Wuhan, China. They bounced back in April when delayed bookings were loaded after China came back online. Beginning in May, they sank again as container carriers “blanked” (canceled) sailings. Now, it looks like there could be at least some momentum in the positive direction.
Container-liner schedules are about to provide a telling clue on U.S. cargo demand.