Digital Magazine: December 12, 2018

Transpacific ocean pricing ‘more than double’ 2017

Freight rates have remained high late in the year as shippers rush cargo to the U.S. before higher tariffs kick in.

   Ocean freight rates between China and North America have remained high late into 2018 as shippers rush to bring cargo into the country before U.S. tariffs on imports of $200 billion of Chinese goods are slated to increase from 10 percent to 25 percent.
   “Remarkably, on both lanes this week, transpacific ocean pricing is more than double what it was this time last year,” says Freightos, the online international freight market place that publishes the Freightos Baltic Index (FBX) in conjunction with the Baltic Exchange.

Transpacific ocean pricing ‘more than double’ 2017

Freight rates have remained high late in the year as shippers rush cargo to the U.S. before higher tariffs kick in.

Transpacific ocean pricing ‘more than double’ 2017

Freight rates have remained high late in the year as shippers rush cargo to the U.S. before higher tariffs kick in.

 
Continued from previous page
   Ocean freight rates between China and North America have remained high late into 2018 as shippers rush to bring cargo into the country before U.S. tariffs on imports of $200 billion of Chinese goods are slated to increase from 10 percent to 25 percent.
   “Remarkably, on both lanes this week, transpacific ocean pricing is more than double what it was this time last year,” says Freightos, the online international freight market place that publishes the Freightos Baltic Index (FBX) in conjunction with the Baltic Exchange.
   Freightos says the FBX shows freight rates from China to the West Coast have increased by 130 percent and China to the East Coast by 126 percent over where they were a year earlier.
   “Containerships on the Asia to East Coast North America trading lane are currently full to brimming, providing carriers with a nice bounty in the form of greatly inflated spot market freight rates, which are currently more than twice the amount they were this time last year,” said Drewry in the latest edition of its Container Insight Weekly. “Carriers have done a far better job of managing capacity on the Asia-ECNA (East Coast North America) route than for other east-west trades, rewarded with much higher freight rates. We suspect that they will adopt a wait-and-see approach with regards to the January tariffs and will look to protect the gains by removing some tonnage if necessary.”
   Earlier this month, Drewry said that the transpacific trade “is once again a money-printing factory for carriers. By the end of July, following earlier service suspensions, ships were full, cargo was being rolled and carriers’ coffers were quickly filling up again. A lot of the sudden cargo rush was attributed to U.S. President Donald Trump’s imposition of new tariffs on a whole range of Chinese goods, which came into effect 24 September and spurred American importers to bring forward supplies.”
   Where last November transpacific “prices were falling as peak season wound down (respectively dropping 30 percent and 29 percent in the four full weeks of November), this year prices have largely held. China-West Coast prices are down just 4 percent from three weeks ago, China-East Coast prices are percent up,” said Freightos.
   In contrast, ocean rates from China to North Europe — where trade is not impacted by the U.S. tariffs — are up only 7 percent from where they were a year ago.
   Zvi Schreiber, the chief executive officer of Freightos, says, “Peak season this year is as much about getting to port before the January 1 tariffs as it is about getting to the shelves before December 25. Ocean carriers have also shown more discipline on capacity and have been rewarded with rates double last year. The last-minute efforts to beat January 1 will likely extend the peak season for a couple more weeks yet — unless, of course, sparks fly when Presidents Xi and Trump meet up at this weekend’s G20 summit.”
   Trump told The Wall Street Journal, in an interview published Monday, that it is “highly unlikely” that he would accept a request by China to hold off on increasing tariff rates on Chinese goods to 25 percent on Jan. 1. Trump is due to meet with Chinese President Xi Jinping meet on Friday, when leaders of the G20 meet in Buenos Aires.
   The president told the Journal that if talks with Xi don’t go well, he could put tariffs on Chinese imports that are currently not subject to duties: “If we don’t make a deal, then I’m going to put the $267 billion additional on” at a tariff rate of either 10 percent or 25 percent, he said.
   “If tariffs are slapped on those products so far spared, the subsequent rush to pre-stock will extend peak season through to February,” said Schreiber.
   Freightos said, “With both countries smarting from the tariffs, and neither leader wanting to back down, the guessing game may continue. In that case, freight prices will largely stick. But any backing down or agreement will see freight prices dropping went up 40 percent and 42 percent, respectively in October, a marked contrast to last year when there was no increase at all.”
   Air freight rates also are on the rise, says Freightos. Between Nov. 5 and 26, rates from China to the U.S. have increased 9.06 percent, from China to Europe by 16.07 percent and from Europe to the U.S. by 3.33 percent.
   “With no capacity constraints on the Europe-U.S. lane, peak pricing hasn’t taken off in November,” Freightos observed.
   Continuing high transpacific ocean prices reflects increased demand. LCL and FCL bookings on Freightos went up 40 percent and 42 percent, respectively in October, a marked contrast to last year when there was no increase at all.
   Looking forward to next year, Drewry offered this caution if trade volume drop in 2019: “The Transpacific — sometimes stop, sometimes go — is currently the most unpredictable container trade. Carriers may be thanking President Trump right now but they may come to rue the day if the trade conflict sees volumes disappear during crucial contract negotiations next year.”
Those companies that can build effective partnerships to make their urban delivery networks more elastic, invest in the most effective technologies to boost productivity, take advantage of data to build better customer experiences and, most importantly, manage their inventory as efficiently as possible will emerge as winners in the dynamic e-commerce marketplace of tomorrow.
The Shanghai Containerized Freight Index showed that spot container rates from Shanghai to the U.S. West Coast stood at $2,030 per FEU as of Dec. 7, while rates from Shanghai to the U.S. East Coast totaled $3,136 per FEU.
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