To Our Valued Customers:
Market Rates – The increase implemented on May 1st by ocean carriers that ranged between $250 to $300 per container has, for the most part, remained intact through May 14. Market rates should begin to deteriorate depending on the sub-trade. All water East coast services will have fewer blank sailings during the 2nd half of May and reason we expect downward pressure on market rates. For West coast and inland points via West Coast are expected to slowly drop or remain relatively flat due to the abundance of blank sailings. The recent announcement of extra loaders in the market is a good indicator the blank sailings are balancing supply with demand and actually creating capacity shortages for some port pairs into Southern California.
Extra Loaders – This week two ocean alliances (THE & OCEAN) announced additional sailings to relieve a capacity shortage by adding Los Angeles to the GME service week 21-23 and will omit Tampa to keep proforma transit time. ONE & Yang Ming will deploy a 3,000+ TEU vessel that will call Shanghai on May 25th followed by Ningbo before departing to LGB/LAX. The ability of alliances to remove a tremendous amount of capacity in a very short period of time and add extra loaders on an ad-hoc basis is a trend that will continue during these challenging times as ocean carriers strive for that supply-demand equilibrium.
Marine fuel metric ton rate collapse - The continued lack of demand is wreaking havoc on bunker fuel suppliers who are now selling at a price per metric ton two-thirds of what it was only 4 months ago. The metric ton price as of last week was trading below $250 per metric ton with the gap now less than $60 vs. the lower cost bunker fuel that has a higher sulfur content (3.5% vs. -.5% VLSFO). OPEC has agreed to reduce supply and oil prices have stabilized over the last week with crude oil per barrel nearing $30.
Should we expect a peak season surcharge this year? – We know it’s early to talk about potential peak season surcharge as the ink has yet to dry on long-term fixed-rate contracts however why don’t we look through the crystal shipping ball anyway! As we know last year due to the ongoing trade war a peak season surcharge never became a talking point in the market. The global pandemic and uncertainties that come along with it are a potential reason we do see a peak season surcharge in 2020 at some point. Does that happen during the traditional peak season from late summer through early fall or is implemented late in the year into early 2021 before the Chinese New Year?
We think the potential exists as ocean carriers will carefully manage capacity and determine future sailings based on shipper’s forecasts. The industry has always struggled with predicting container volume forecasts and we can only expect 2020/21 being the most challenging year since the global financial crisis. Ocean carriers will not deploy sailings if forecasted volumes reflect low utilization which will force the market into a situation where vessels are booked say at 120-140% of capacity however not strong enough to deploy additional vessels that will yield low dragging down market rates. If this scenario plays out in the market a peak season surcharge can be on the table, time will tell.