Spot Rates Remain Steady As Carriers Face End Year Uncertainty

Eastbound trans-Pacific spot rates are mostly holding their strength - up 24 percent to the East Coast and 41 percent to the West Coast from three weeks ago. The next few weeks will help reveal how much of carriers' projected nearly 7 percent cuts in capacity is being driven by higher operating costs and supply discipline, and how much is their hedge that US tariffs on Chinese goods will have an impact.

The spot rate for shipping a FEU from Shanghai to the US East Coast last week was $2,650, down 2.2 percent from $2,710 the previous week. The US West Coast rate was $1,616 per FEU, down 4.1 percent from $1,685 the previous week. Bunker fuel prices, up by more than 50 percent from last year, are also putting upward pressure on spot rates.

Import volume has been robust for early summer and is expected to accelerate in the coming months. According to Global Port Tracker, imports in the first half of 2018 increased more than 4 percent, and record months for merchandise imports are expected in July, August and October. Capacity utilization rates are also high during this pre-peak season period, averaging about 92-93 percent to the West Coast and 95-97 percent to the East Coast, according to shipper and carrier sources.

The next few weeks will be critical in determining if imports will remain strong into autumn, or if the June-July spurt in traffic was a rush job by retailers and other importers to get ahead of U.S. tariffs. On a year-over-year basis, though, the East Coast rate is up 18.7 percent and the West Coast rate is 31.8 percent higher, according to the Journal of Commerce's Shanghai Containerized Freight Index.

About half, or 5.1 million TEU, of US imports from China are exposed to tariffs, depending on the implementation of the $16 billion remaining in the first round for a total of $50 billion, and the $200 billion that were announced in July. U.S. President Donald Trump said last Friday he was considering imposing tariffs on all Chinese imports, which amounted to 10.7 million TEU in 2017.

Roughly 60 percent of Asia imports to the United States move under service contracts, which generally run from May through April, with the rest being moved by importers who only use the spot market, or shippers with contracts that have maxed out their minimum quantity commitments. Many shippers have clauses in their contracts to prohibit the rolling of cargo, or the delaying of cargo for a sailing later than was booked. When spot rates rise, carriers often roll contracted cargo for higher-paying cargo bought on the spot market.

Source: Journal of Commerce