Uncertainty is building on the trans-Pacific trade, as rates fall to 12-month lows, excess capacity floods into service, and Maersk Line prepares to exit the Transpacific Stabilization Agreement (TSA) this month.
Alphaliner said rates could weaken further and fall below the key levels of $1,000 per FEU to the US West Coast and $1,600 per FEU to the US East Coast, with no clear picture emerging on the course that trans-Pacific rates could take over the coming months.
Despite the return to profitability of carriers this year, freight rate levels to the United States are well behind where they were at this time in 2016. Asia-West Coast rates are 22 percent lower than during the same week last year while rates to the East Coast are down 23 percent year over year.
Spot rates from China to the US West Coast fell to $1,078 per FEU last week, compared with a peak of $2,211 per FEU in January, while rates to the US East Coast dropped to $1,804 per FEU, down from their $3,647 per FEU peak in January, according to data from the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI). The weekly rate movements are tracked at JOC.com’s Market Data Hub.
Although the SCFI prices are an amalgamated rate of numerous spot rates from non-vessel operating common carriers and carriers, forwarders have reported that Shanghai-West Coast rates were as low as $700 per FEU in early November.
Many attempts to implement general rate increases (GRIs), by TSA member carriers and non-members, have failed this year, and Maersk’s decision to withdraw from the TSA this December could further destabilize the trade, according to Alphaliner. Through 2017, TSA carriers have made 18 attempts to impose GRIs, ranging from $400 to $1,000 per FEU, with none of the initiatives sticking.
The analyst said frustration at the lack of GRI success may have prompted Maersk’s decision to leave the TSA, the latest in the series of recent departures from the trans-Pacific discussion group that has already been weakened by the resignation of “K” Line, NYK, and Zim Integrated Shipping Services, as well as by the 2016 exits of Hanjin Shipping and China Shipping Container Lines via its merger with Cosco.
The failure of those rate increases has taken place even as total US container trade has expanded 3.3 percent year over year through the first three-quarters of the year, according to PIERS, a sister product of JOC.com. Imports have risen 5 percent to 16.9 million TEU.
Several carriers have already announced further rounds of trans-Pacific rate increases of between $600 and $1,200 per FEU for 15 December and 1 January. Any success will probably be short-lived, mirroring the shipping lines’ previous failed attempts to raise freight rates on the trade lane in 2017.
SeaIntel highlighted the complete halt in volume growth of the Asia-North America trade that it labeled as “very worrying,” as it had been growing at an impressive 8.3 percent for year to date through September, but in October it registered a measly 0.1 percent growth rate.
The analyst said the imbalance on the trans-Pacific trade has been steadily growing over the past six years with the round-trip rate becoming increasingly dependent on the head-haul. This has also resulted in undermining the back-haul rate levels, as the deteriorating utilization has resulted in negative price pressure.
Alphaliner said Maersk’s departure will leave the TSA carriers’ share of the trans-Pacific trade at only 65 percent, compared with a peak of over 80 percent in the past. With significant capacity expansion planned in the Asia-North America trade in May next year, the TSA’s weakened membership position could lead to further rate volatility in 2018.