To Our Valued Customers:
We know the situation impacting all of us is evolving hourly it seems, we wanted to continue to advise you all of what we are seeing and experiencing in the market. At Laufer, we are committed to providing you with as much information as possible as quickly as possible, understanding of course that the events are quite fluid and changing rapidly.
So here is a shortlist of what we are seeing so far today:
Market Conditions: The initial surge of cargo departing China over the last couple of weeks seems to be losing momentum as future forecasts quickly become uncertain as COVI-19 impacts the USA economy. Importers are bracing for potential order uncertainties and potential cancellations as the country unite on limiting the spread by closing and or limiting retail and all non-essential businesses in high impact regions. How long will it take before it’s “business as usual” is anyone’s guess and until we have clarity can only assume importers will take a very cautious approach on purchase orders in the short term.
Coronavirus related Per-Diem & Demurrage charges potential: The impact on supply chains over the next several weeks will vary by region, vessels departing Asia with strong utilization levels during the 2nd half of March will dock at US ports in April. Again, the impacts will vary by region, New York and Los Angeles will likely face situations where warehouses are temporarily closed or have limited staff to unload freight causing as a spike in demurrage and per-diem related charges. Other regions might experience limited issues due to the impacts of the virus being less widespread.
India announces official lockdown: As China manufacturing is operating between 70%-80% of normal, other countries are now the front line on the battle to contain the Coronavirus. India Prime Minister Narendra Modi ordered a 21-day lockdown effective Tuesday, March 24th at midnight. The entire country will be under a total lockdown however ports will continue to operate in addition to essential services. We can only expect ocean carriers to blank some sailings where possible to avoid unnecessary vessel delays since export volumes will drop off drastically.
Blank sailings: The majority of blank sailings have ended with only 15,000 TEU out of the approximate 400,000 TEU in weekly capacity or 3.75%. We will closely monitor the situation as forecasted volumes that were expected on being robust in April and May might not materialize as the impacts caused by the Coronavirus ripple through the US economy.
Oil price war: The global oil prices went into a downward spiral after the crude oil production alliance between OPEC and Russia failed to reach an agreement in early March. Oil prices were already depressed due to the manufacturing impacts in China from the Coronavirus and a price war on oil between Saudia Arabia and Russia has caused a per barrel drop not seen for almost 20 years. Very low sulfur fuel (VLSFO) that ocean carriers were mandated to utilize by January 1st, 2020 unless sulfur scrubbers were installed was trading at approximately $700 per metric ton back on January 1st . VLSFO is now trading below $300 metric ton or 58% lower. Due to the mechanics on how BAF/IMO works within long term fixed rate agreements the benefits will not be realized until July 1st when the 3rd Quarter BAF/IMO adjustments take place.
Market rates: Rates were fairly flat from February through March 14th before increasing on March 15th. Ocean carriers were successful on pushing up rates due to a resurgence of cargo hitting the piers as China manufacturing came back online. The general rate increase ranged from $200-$250 to most US and Canada destinations. The market was bracing for another increase on April 1st however with the Coronavirus impacting the majority of the global consumer markets, it’s more likely market rates will face downward pressure for the foreseeable future unless capacity is removed through blank and void sailings. Stay tuned…
We truly appreciate all your support. Should you need any additional information or guidance, please feel free to contact your Laufer sales or team member.