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Kinghood International Logistics Inc.

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    250 Cerritos, CA 90703

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Trans-Pacific Discipline Stems Spot Rate Drop
Kinghood International Logistics Inc | Updated: Feb 14, 2017

   In another sign of renewed capacity discipline, the spot rate for shipments from Asia to the US declined marginally last week even though many factories were closed for the Chinese New Year celebrations.

 

   The spot rate for shipping a 40-foot container from Shanghai to the West Coast declined 6.12 percent from the previous week to $1,964. The spot rate to the East Coast was $3,456 per 40-foot equivalent unit container, down 5.03 percent from the previous week, according to the Shanghai Containerized Freight Index published by JOC.com’s Market Data Hub. By comparison, last year the spot rate to the West Coast declined 19 percent in the second  week after Chinese New Year, and it dropped 11 percent to the East Coast.

 

  Furthermore, the spot rates in the first six weeks of this year have been consistently higher than last year, when rates were depressed because of overcapacity in the trade. Compared to the same week last year, the West Coast spot rate was 48.86 percent higher than the $1,321 per-FEU rate, and the East Coast rate was 47.63 percent higher than the $2,341 per-FEU rate in Week 7 of 2016.

 

  The SCFI has trended noticeably higher since last fall, which indicates that carriers have regained some of the pricing power they lost in early 2016. Freight rates hit record lows earrly last year and remained low until Hanjin Shipping filed for bankruptcy protection in South Korea on Aug. 31. Hanjin had accounted for about 7 percent of the total capacity in the Pacific.

 

  The main impact of the Hanjin bankruptcy appeared to be psychological as shippers sought reliability more than low freight rates. US importers since last fall have been willing to pay higher freight rates in order to guarantee service and capacity.  Furthermore, vessel utilization so far this year has been quite strong, according to the Transpacific Stabilization Agreement, a discussion group representing most of the major carriers in the trade. The latest TSA figures for the week of Jan. 29 show vessels in Pacific Northwest services were operating at 97.8 percent of capacity and vessels in Pacific Southwest services to Los Angeles-Long  Beach were at 98.1 percent of capacity. On all-water services from Asia to the East Coast through the Panama Canal, the vessel utilization rate was 98.1 percent, and through the Suez Canal the ships were basically full at 99.5 percent utilization.

 

  Spot rates can be expected to decline further over the next few weeks because it will take awhile for the factories in Asia to ramp back up to full production. Indeed, the decline in freight rates on the Asia-Europe trade lane last week was larger than in the eastbound Pacific, with the average spot rate dropping 11 percent from the previous week, according to the SCFI.

 

    Of greater importance, though, is the impact the current conditions will have on the      negotiations between carriers and their customers for service contracts. Larger retailers and    other importers have already been testing the waters with carriers for the annual service  contracts that will run from May 1 through April 30, 2018. Industry analysts addressing the  Georgia Foreign Trade Conference last week said that while conditions in the trade at this moment  favor the carriers, additional capacity is expected to enter the Pacific in the coming months,  and under such conditions carriers often reduce their pricing in order to secure market share.


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