Trans-Pacific Spot Rates Continue To Be Plagued By Overcapacity

Trans-Pacific spot rates fell to uncomfortably low levels this week, suggesting that container lines in the Pacific continue to be plagued by overcapacity. The benchmark of spot rates from Hong Kong to Los Angeles fell to $1,009 per 40-foot equivalent unit (FEU). It was a 8 percent decrease from last week and 52 percent below the reading from a year ago. The East Coast is doing even worse, with rates at $1,824 per FEU, a fall of 9 percent from last week and 55 percent year-over-year. Rates have come crashing down since February, when spot rates to the East Coast peaked at $5,049 per FEU and $2,265 to the West Coast. That was during the time of severe port congestion on the West Coast during the coast wide contract negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA). Since then, freight rates have fluctuated wildly in line with supply-demand economics, although the year-long trend has been decidedly downward. When U.S. imports from Asia spiked in line with seasonal developments, such as the delivery of summer, back-to-school and holiday merchandise, carriers would publish general rate increases (GRIs) of $400 to $600 per FEU. However, carriers rarely got the full amount of the GRI, and the rate hike would deteriorate rapidly. Carriers in the trans-Pacific trade, as in most trades globally, simply have too much capacity due to an endless delivery of large new vessels into their fleets. Orders for vessels with capacities of greater than 20,000 twenty-foot-equivalent units are now being placed, with deliveries scheduled for 2019, so the overcapacity situation is expected to continue for some time. In the short term, the eastbound trans-Pacific trade could have a difficult two months ahead. All of the Christmas merchandise has been delivered, and the trade could enter a deep lull until imports pick up again in early 2016 before factories in Asia shut down for the Chinese New Year celebration. Stay tuned for more updates on future rates.