April 8, 2024 | Page 12

Container Shipping Quarterly

Special Report

Last year , the Lunar New Year factory closures began on Jan . 22 , with the West Coast spot rate at $ 1,290 per FEU and the East Coast spot rate at $ 2,780 per FEU . One month later , the West Coast spot rate had edged down to $ 1,200 per FEU and the East Coast rate had fallen to $ 2,240 per FEU . For the full year , eastbound trans-Pacific spot rates averaged $ 1,519 per FEU and $ 2,450 per FEU , respectively , to the West and East coasts .

Although spot rates from Asia to the US still have room to fall farther , the rates being quoted vary widely among carriers , Chris Sur , executive vice president for ocean freight contract logistics at non-vessel-operating common carrier ( NVO ) Unique Logistics International , told the Journal of Commerce . While some West Coast rates were being quoted at slightly below $ 3,000 per FEU , “ we still have carriers charging $ 5,000 to the West Coast ,” he said .

‘ Dangerously low ’ quotes

When spot rates are relatively high , as they are this year , carriers attempt to leverage those rates to achieve higher contract rates with their customers . Most , though not all , annual service contracts take effect May 1 .

Sources say the largest retailers are seeking rate levels in their service contract negotiations that carriers claim are far below their operating costs and fear would drag down the

“ We still have carriers charging $ 5,000 to the West Coast .”

entire market . In the 2023 – 24 service contracts , the largest retailers reportedly signed deals for about $ 1,200 per FEU to the West Coast and $ 2,200 per FEU to the East Coast .

Now , some of those retailers are “ quoting some dangerously low rates , well below carriers ’ $ 2,000 [ per container carried ] operating costs ,” one NVO said .

“ We expect contracts to be concluded at steep discount to current spot freight rates but higher than 2023 levels ,” Andrew Lee , an analyst at investment firm Jefferies , said in a March 18 research note .

This year ’ s negotiations are occurring amid the latest disruption in container shipping , with vessels diverting away from the Red Sea and Suez Canal to avoid possible attacks by Houthi militants operating in Yemen . Although those diversions around southern Africa caused spot rates to rocket higher late last year and into early 2024 — seemingly putting carriers in a position of strength for annual contract talks — prices have fallen sharply as the market adjusts to the “ new normal ” of the longer transits .

The steady decline in spot rates has begun to push the bargaining power pendulum back toward shippers . And while it ’ s unknown when the security situation in the Red Sea will permit normal Suez transits to resume , carriers are mindful about the expected drop in rates and sudden overcapacity that will result when that happens .

Meanwhile , mid-size retailers and NVOs say they are ready to exchange serious proposals with carriers for their annual service contracts once the top few retailers agree on the rates that will set the floor for pricing .

Although many mid-size and smaller beneficial cargo owners ( BCOs ) have been meeting with carriers , they are likely to wait until late March to move into the final phase of negotiations in order to get a better idea of what the supply-demand dynamics will be in the trans-Pacific going forward , Kurt McElroy , executive vice president at forwarder Kerry Apex , told the Journal of Commerce .

McElroy believes carriers are also ready to enter the final round of negotiations , “ but they really have to reach a settlement with the big BCOs first ,” he said .

Canal capacity distortion

Those supply-demand dynamics are already beginning to emerge , with stronger-than-expected volumes in the first two months of 2024 and the impact of disruptions in the Suez and Panama canals helping to buoy rates .

US imports from Asia reached 1.42 million TEUs in February , according to PIERS , a sister product of the Journal of Commerce within S & P Global . While down from 1.56 million TEUs in January — the result of Lunar New Year factory closures in China — the 39.7 % growth compared with February 2023 is the largest year-over-year increase for any month since May 2021 . It ’ s worth noting , however , that February 2023 imports were the secondlowest in more than seven years , behind only March 2020 , when global trade came to a near halt in the early days of the COVID-19 pandemic .

What ’ s more , after an 18.1 % year-over-year jump in January , year-to-date volumes from Asia were up 13.3 % from the first two months of pre-pandemic 2019 .

On the supply side of the equation , carriers are increasing available capacity between Asia and North America to account for capacity lost through Red Sea diversions , as well as to take advantage of the high spot rates .

Maersk , for example , is relaunching its TP20 service connecting China with the US East and Gulf coasts via the Panama Canal , which had been suspended last year due to weakening demand and ocean freight rates .

THE Alliance will restart its East Coast 4 ( EC4 ) and

Sliding trans-Pacific spot rates remain well above 2023 levels

Container spot rates from North Asia to US West and East coasts , in USD per FEU

USD per FEU

$ 12,000

$ 10,000

$ 8,000 $ 10,000 $ 6,000

$ 4,000 $ 2,916 $ 2,000

Source : Platts , S & P Global

North Asia to US East Coast North Asia to US West Coast

© 2024 S & P Global

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12 Journal of Commerce | April 8 , 2024 www . joc . com