Transpacific Eastbound Market Update 08/28/20

To Our Valued Customers:

 

Market Conditions – The strongest shipping month of the year historically on the Transpacific is upon us and this September is not going to disappoint. Vessels are sailing at capacity in August and with big box shipper’s volumes expected to be very strong over the next few weeks, September will provide quite a few challenges market wide.

 

Market Rates Reach Historic Levels – Market rates did not fall off during the 2nd half of August due to continued strong demand and high vessel utilization which is setting the stage for another rate increase on September 1st. The expected increase will push market rates up by 12% to 14% depending on sub-trade. The rate increase will push market rates above historic highs. Market rates to destinations such as Chicago, Dallas, Memphis & Ohio Valley are extremely high as importers absorb the roundtrip cost on empty repositioning of equipment back to ocean terminals. Export volumes are down as the summer slack season continues. The market potentially can see one last GRI (general rate increase) prior to China National Holiday that begins on October 1st. The GRI was announced for September 15th however too early for speculation on how much and if it will stick with rates already at all-time highs. Stay tuned…

 

Fixed Rate vs. Market Rate GAP Continues to Widen – Importers that decided to agree on fixed rate pricing have been enjoying their decision made back in May as the gap between fixed and market pricing is approximately 2 for 1 from China base ports to Southern California. Ocean carriers are limiting the fixed booking capacity to MQC (minimum quantum commitment) or past performance ratios, IE > June & July average weekly performance if lower than MQC. With the September 1st GRI set to further widen the gap expectations are for a dwindling pool of fixed rate capacity being offered in the market. The peak season surcharges levied against fixed rate agreements helped close the gap back on July 1st however with several GRI since that time period the differential is simply to big and ocean carriers face opportunity loss by accepting fixed rate business beyond the obligated commitments. 

 

Origin Equipment Availability Challenges in Asia – Reports of empty equipment becoming more frequent throughout the Asia rim with ports such as Shanghai, Ningbo & Yantian leading the way in China. India ports such as Nhava Sheva, Mundra & Tuticorin also reporting equipment shortages as blank sailings back in the 2nd quarter, coupled with the lockdown has caused the shortage. The 40’High Cube containers are by far the most desirable equipment size and we expect the situation to worsen in September. Shippers that have bookings utilizing only 40’HC should review with your partners and be flexible on utilizing other equipment sizes during this time frame as the shortage is market wide. 

 

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