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Trans-Pacific carriers ready extra loaders for peak season    11/07/2019
The trans-Pacific trade is heading for another peak season of volatility with the US-China trade war creating uncertainty in the container shipping market.

Carriers on the trans-Pacific will deploy extra loaders through the peak season to compensate for three blank sailings implemented by the Ocean Alliance in July, according to Alphaliner.

Cosco Shipping, Maersk Line, and Mediterranean Shipping Co. will deploy six extra loaders in July and August, focusing on the Asia to East and Gulf coasts, the maritime analyst said.

Four of the six extra loaders will inject about 22,366 TEU of capacity, but the capacity of the two additional vessels that are planned for deployment late July and early August is not yet known. Through its enhanced partnership with the 2M Alliance of Maersk and MSC, Zim Integrated Shipping Services will add two new loops from Asia to the Gulf Coast, adding between 10,000 and 11,000 weekly TEU capacity.

Six blank sailings are currently planned on the trans-Pacific, mostly for the US West Coast, although SeaIntelligence CEO Alan Murphy pointed out that the numbers were not that far off the long-term 2012-18 average.

“While it is true that the extraordinarily high number of blank sailings in 2018 was one of the reasons behind the unusually strong peak season, we must not forget that the only reason sailings are blanked, is because the deployed capacity is greater than the actual demand,” he said.

With demand growth slowing and uncertainty over whether the US will announce a new round of tariffs on Chinese goods, blanking of capacity and adding extra loaders is a strategy that will have to be carefully managed.

US imports from Asia in the first half of 2019 increased only 1.4 percent from the same period last year, about half the compound annual growth rate of 3 percent since 2015. Imports from China declined 5 percent, compared with a 1.7 percent compound growth rate since 2015, according to PIERS, a JOC.com sister company within IHS Markit.

Roiling trade war

In his Sunday Spotlight newsletter, Murphy said that the trans-Pacific should brace for a second straight peak season roiled by the US-China trade war.

“It would be safe to assume that given the current 25 percent tariffs on almost half of the US imports from China, carriers would adjust capacity on the trans-Pacific trade to cater to a potential loss in volumes,” Murphy said.

Factoring out blank sailings and extra loaders, carriers this year will increase scheduled weekly capacity to the West Coast only 0.6 percent, compared with a 2.4 percent increase last year. On the East Coast, carriers last year increased scheduled weekly capacity a rather large 9.4 percent. This year, total capacity is scheduled to increase 3.4 percent to the East Coast, according to SeaIntelligence.

While carriers see it as critical to increasing utilization and keeping rates at acceptable levels, the adjustment of capacity is not a strategy appreciated by beneficial cargo owners (BCOs). One US retailer complained to JOC.com this week that sailings were canceled, “often with little notice and often after the cargo has been booked on the vessel.”

There is also lingering disenchantment with carriers on the trans-Pacific, with customers feeling they were taken advantage of last autumn when the front-loading of imports put vessel space at a premium and some carriers charged way above contract rates.

Budget havoc

“It’s almost like it was in 2010,” an NVO told JOC.com. Carriers had removed a significant amount of capacity during the 2008-09 economic recession, and when imports surged in 2010 as retailers and manufacturers replenished inventories, spot rates increased rapidly.

Some BCOs complained that last autumn’s $1,000 per-container peak-season surcharges played havoc with budgets they had presented to their companies earlier in the year. “We went 8-15 percent over budget,” an importer told JOC.com.

The July 1 general rate increases have kicked in and according to the Shanghai Containerized Freight Index (SCFI), published on the JOC Shipping and Logistics Pricing Hub, the spot rate to Los Angeles was $1,720 per FEU on July 5, up 24.5 percent from $1,382 the previous week. The East Coast rate was $2,789 per FEU, an increase of 16 percent from $2,404 the previous week. Year over year, the West Coast rate is up 11.3 percent, while the East Coast rate is 10.5 percent higher.

Looking ahead, it is not an entirely gloomy picture. The latest monthly Global Port Tracker report by the National Retail Federation (NRF) and Hackett Associates predicts that imports at major retail container ports will remain at high levels this summer, although they are expected to grow only modestly compared with last year’s rush to bring merchandise into the country ahead of scheduled tariff increases.

“Retailers still want to protect their customers against potential price increases that would come with any additional tariffs, but with the latest proposed tariffs on hold for now and warehouses bulging, there’s only so much they can do,” said Jonathan Gold, NRF vice president for supply chain and customs policy.

“We will still see some near-record numbers this summer, but right now no one knows whether there will be additional tariffs or not. We hope the restarted negotiations with China will result in significant reforms rather than more tariffs that tax American companies and consumers.”




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