Trans-Pacific Spot Rates Rise Ahead of Summer-Fall Peak Season

Eastbound Pacific is returning to normal seasonal trends as evidenced by last week's spot rate index. Last Friday, the Shanghai Containerized Freight Index (SCFI) posted the first year-over-year increase of 2018 as the Shanghai-East Coast rate increased 1.4 percent from Week 20 in 2017 to $2,331 per FEU. The Shanghai-Los Angeles rate, at $1,308 per FEU was down 1.4 percent from the same week last year.

Overall, 2018 spot rates also appear to indicate a return to normal seasonal trends. The West Coast rate peaked on Feb. 2 at $1,552 per FEU before factories in Asia closed for the annual Chinese New Year celebrations. Rates plunged for several weeks in the post-Chinese New Year lull, bottoming out at $945 per FEU on March 2. The rate of $1,308 last week indicates the trade is repositioning itself for the summer-autumn peak shipping season. The East Coast rates are following a similar pattern, peaking at $2,843 per FEU on Feb 2 before the Chinese New Year, bottoming out at $1,933 on March 23 and climbing back to $2,331 per FEU last week.

The past two years have been marked by a large increase in capacity, with global TEU capacity rising 1.5 percent in 2017 to 20.3 million TEU, following an increase of 6.6 percent in 2016, according to IHS Markit ship data. Carriers front-loaded their new-build vessel deliveries in the first half of 2018. New capacity is expected to peak in July, resulting in a 9 percent increase in global vessel capacity in the second quarter after 8 percent growth in the first quarter. The surge in capacity in the first half of 2018 will be absorbed somewhat during the July-October peak season. Cargo volumes will drop in November with delivery of the holiday-season merchandise, only to increase again before Chinese New Year 2019, and then the volume will drop in the post-lunar New Year lull. Spot rates should rise and fall in line with those trends, but year-over-year comparisons should be more favorable than they have been the past year.

Source: Journal of Commerce