Container premiums expected to continue through H1 – report

Large container ship arriving in port.

The premium surcharge, which overstayed in the trans-Pacific route and later in other ex-Asia routes for nearly a year, is expected to continue at least through the first half of 2022 due to firm demand and worsening schedule reliability, despite reports of easing in some regions post China’s Golden Week holiday.

“Premiums would most likely stay on East-West trades and also Asia-Oceania due to strong demand and absence of new capacity, stubborn port congestion in the US, Europe and Asian transshipment hubs and the blank sailing programs,” Peter Sundara, Global head of ocean freight for a major cargo owner said.
The fact that coronavirus is still around with many areas in Europe going into shutdown, and the US and other regions susceptible to disruptions too, makes it look like the premiums will stay, a carrier source said. “Unless the availability of vessels and empty containers improve, there will always be too many cargoes for carriers to choose from. Shippers will obviously need to pay premiums to get timely loading.”

The premium rates gained prominence in November 2020, when carriers started levying extra fees for confirmed space or timely bookings amid vessel shortage and shipment delays. While initially the premium fees were around $1,000-$2,000 per container, it has increased two-to-four times in the last one year.

Platts Container Rate 5 — North Asia-to-East Coast North America — was assessed at $10,000/FEU on Dec. 2, against $4,800/FEU a year ago. The Platts container assessments denote the FAK (Freight All Kind) spot rates. The all-inclusive premium rates are currently at $11,000-$14,000/FEU on North Asia-to-East Coast North America route and $16,000-$19,000/FEU for Southeast Asia-to-East Coast North America.

However, the premium rates have eased by nearly 20%-25% since Chinese Golden Week holiday in October due to a slowdown in demand and reduced production at the factories amid a power rationing in China. The rates for North Asia-East Coast North America route peaked to $22,000-$25,000 per FEU, with some deals heard at $30,000 per FEU, in during July-September.

North Asia-US premiums seem to be stable or minimal right now, but they will become more prevalent again as demand outweighs supply ahead of the Lunar New Year holiday, and shippers outbid one another for space as we saw during July-September, a US based freight forwarder said. According to some other sources, premiums are heading up fast again, especially from MSC for December-January sailings.

“Despite this recent dip in exports, carriers see the Chinese and Southeast Asian markets as their big money makers and will continue to prioritize them,” Bhavik Bhanushali, Pricing Manager (India), Parekh Integrated Services Pvt. Ltd. said.

With the congestion at American ports currently, they might avoid for a short period diverting the vessels to the Africa, Australia and Middle East markets but the demand to the US is expected to pick up again, he added.

Contracts and co-loaders
The nature of long-term contracts and presence of sub-forwarders/co-loaders remain crucial to determine the quantum of premium surcharges in 2022, sources said.

One of the reasons why premiums were at such high levels in 2021 was co-loaders re-selling space at exorbitant levels to shippers who were struggling to secure space and equipment, Sundara said.

Going ahead, if the big retailers and large NVOs lock-in long terms deals that come with space and equipment guarantee, the co-loaders might have a smaller pool of FAK space to re-sell into CIF (Cost, Insurance, and Freight) market, he added. “They can either re-sell them at higher premium or at lower depending on demand. We have to wait and see how this space develops.”

There may also be instances where carriers avoid offering contracts to certain big-scale freight forwarders, a logistics provider based in India said. “They offered space to them at such low rates – $6,000/unit from Asia to US or Europe-but the forwarders then sold that space to consumers at two-to-three times the contract rate…a trend that saw a major carrier restrict forwarder bookings on the larger routes.”

Another thing that might shape the premiums landscape is how strongly the carriers flex their full-scale offerings going beyond just the ocean freight, sources said.

“Some carriers are telling shippers they will only be able to carry or release bookings if they pay for the full deal – warehousing, ocean freight, truck, or rail service to inland point of delivery – for which the carriers can now create their own fees since they control all the aspects. Eventually, the shippers will be left with no choice but to pay them,” a source based in India said.

Asia-Europe remains exception
While premiums have become a norm on not just the long-haul but also the short-haul routes, Asia-Europe trade has largely been free from it so far. This trend is largely expected to continue going forward, with the lion’s share of trade taking place on FAK (Freight All Kind) basis, in contrast to the movements in the Pacific Basin.

Container rates from Asia-to-Europe are seeing some downside as the end of the year approaches, with almost all Christmas demand covered. However, with Lunar New Year just around the corner, expectations remain in the market that rates will further come down, likely stymieing the need and expectation for premiums to emerge on the Asia-to-Europe trade lanes in near future.

Source: Platts