October 26, 2016

Transpacific Eastbound Market Update

 

To Our Valued Customers: 

Market Conditions – What’s Happening with Capacity and Demand?   The market is becoming increasingly clear, with space conditions becoming incredibly tight.  When Hanjin filed for bankruptcy and the market lost approximately 7% of its overall capacity, many expected the remaining carriers to replace that lost capacity with additional services and rotations.  While that happened immediately after the bankruptcy, those additional loaders and capacity have been removed from service.  And those Hanjin vessels that were returned to their charter owners largely remain idled due to lack of demand, pushing the global idle capacity past 1.55 million teus (Alphaliner Newsletter, 2016, Issue 43).  In addition, during the first three weeks in October, we experienced a significant removal of capacity to accommodate China’s Golden Week holiday.  Carriers have also started to announce temporary capacity cuts to prepare for their “winter scheduling” which will go into effect starting in late October.

Chinese New Year Impact:  With the Lunar New Year coming earlier in 2017 (January 28, 2017), we anticipate very tight space conditions to continue through the end of this year, and then to deteriorate quickly in January. 

General Rate Increases:  A clear side effect of tight space conditions is an increasing spot market.  Carriers have achieved this largely by restricting capacity and by imposing smaller GRIs throughout the fall, with one on October 15, 2016, another planned for November 1, 2016, and another planned for December 1, 2016.  We anticipate a possible GRI for January 1, 2017 as well just prior to the Lunar New Year holiday.

Carrier Finances:  It is becoming increasingly clear that Hanjin’s bankruptcy and the impact on its customers’ supply chains are having a significant impact on how the trade looks at their carrier partners, attempts to ascertain their financial strength or weakness, and makes decisions to minimize risk and its consequences.   This public (and internal) scrutiny over profitability is also pushing carriers to do what they can to rethink capacity deployments, reduce capacity where there is over capacity, and to drive up spot rates in anticipation of a strong pre-CNY season and in preparation for contract season 2017.  Therefore, it is expected for this tight space situation to continue through early 2017 and for the spot market to continue its steady climb up.

What can you do?  Understanding that space conditions will remain tight, and will most likely worsen through January, 2017, there are a few things you can do:

1. Review all open P.O.s between now and February, 2017 and communicate with suppliers to push for completion as early as possible.  The three weeks before January28th will be extremely tight so anything you can ship prior to December 31, 2016 please do.

2. Provide forecasts to us so we can prepare carrier options and pre-book where possible.

3. Understand that first routing choice may not be possible, so be as flexible as possible with additional service options, even though they may not be ideal.

4. Communicate this to all suppliers and have them book as early as possible, ideally 14-21 days prior to ready date.

Our #1 priority as always is to help maintain our customers’ competitiveness, to keep your cargo flowing as quickly and as consistently as possible, and to continue to communicate effectively along the way.  Our nimbleness, market awareness, and “Built Different” philosophy enable us to do this - as your partner. 

Thank you very much for all your support.

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