Blog. Shipping Status June 2020

June 18, 2020

Tensions between container lines and some US importers and forwarders are building as tight capacity management and a surge in Asia-US spot rates are drawing accusations that carriers are artificially propping up rates with two dozen blank sailings scheduled from early June to early August.

 With cargo forecasting likely to remain uncertain into the peak season, and reports of rolled cargo mounting, some container lines concede they may overreach when it comes to canceling sailings, but say they are prepared to reintroduce capacity quickly should imports suddenly pick up.

 Shippers and carriers agree that last week’s spike in eastbound trans-Pacific spot rates was caused by aggressive capacity management, but where shipper sources see an orchestrated effort to push rates higher, carriers deny any attempt to manipulate pricing through blank sailings.

 Furthermore, carriers warn that unless retailers provide more guidance as to purchase orders for holiday season merchandise, continued volatility in cargo volumes and spot rates is possible.

 Spot rates spike past two weeks

 US imports from Asia plunged 18.5 percent in May after declining 1.7 percent in April and 18.3 percent in March, according to PIERS. Carrier sources said that with all arrows pointing down due to the economic devastation caused by the coronavirus disease 2019 (COVID-19), the prudent action to take was to cancel sailings for May and June.

 While conceding that blank sailings were a “critical factor” in pushing spot rates higher when imports from Asia unexpectedly spiked in late May and early June, the decisions to cancel the sailings had been made three to five weeks earlier. Estimates of how much capacity has been cut below current demand in the eastbound trans-Pacific range as high as 10 percent.

 Carriers prepared to reintroduce capacity as needed

 Given the widespread uncertainty among carriers and their customers as to import volumes this spring, carriers likely blanked more sailings than was necessary, knowing they could reinstate some sailings if needed.

 Carriers, in fact, have reinstated several sailings that had been blanked earlier. Another option for handling an unexpected spike in demand is to deploy single-voyage extra-loaders, although carriers haven’t deployed any sweeper ships yet this spring.

 Cargo owners and shippers could face continued space constrictions on vessels leaving Asia throughout the summer. It has been stated that carriers are only releasing space to shippers according to their agreed allocation or on past utilization performance, and any urgent cargo is being charged a premium.

 If volumes continue to increase but carriers do not respond with capacity addition, it could cause problems for shippers. Retailers that have year-long contracts will be able to maintain their lower contracted rates each week only for their minimum quantity commitment.

 Space is filling quickly on vessels leaving Asia, and carriers are not guaranteeing shippers that named accounts will get on board at the contract rate, which means that if a shipment is urgent, the customer must pay a premium.

 Capacity constraints forecast through June

 Tight capacity conditions are expected to remain at least through June, but volumes from Hong Kong and China improved significantly during the last two weeks and currently stand at about 75 to 80 percent of the normal volume for this time of year.

 Space is especially tight on Pacific Southwest services from Asia to Los Angeles-Long Beach, which accounts for the larger percentage increases in spot rates to the West Coast than on the all-water services to the East Coast. Given the uncertainty involving tariffs and the US-China trade war, cargo owners want to get their shipments in as quickly as possible.

Sue Fitzgerald, GM, Dove Shipping Intl Inc.  281-328-4100  

Article from  Collyer Logistics