Despite rising tensions between China and the US, transpacific rates were strong during the third quarter. But utilisation figures indicate this was due to better capacity management rather than stronger demand.
FRONT loading ahead of the imposition of further tariffs on imports from China to the US in January appears to be happening at a slower rate than when initial tariffs were announced earlier this year.
Research from Drewry also indicates that the rush to beat the September 24 deadline for the first tranche of tariffs to affect containerised goods was also slower than initially thought.
“Container shipments from Asia to the US did indeed rise in the third quarter, by approximately 5% year on year to all coasts, but nothing like at the rate seen in the first quarter ahead of the first tariff lists when annual growth was about 13%,” Drewry said.
“For Asia to US west coast specifically, volumes increased at a much slower rate than seen on both the east and Gulf coasts, rising by 2.5% year on year in the third quarter.”
The earlier cargo stampede could have been behind the smaller than expected peak season hike, as importers already had a surfeit of stock, Drewry added.
While there was still scope for another phase of front loading ahead of the January tariffs, this could leave carriers struggling to find cargoes in the first quarter, and being forced to suspend services.
“The danger is that there won’t be much left in the system for the early months of next year when carriers will depend on having a strong market to support negotiations for annual contracts, generally to be signed for May 1,” Drewry said.
While rates on the transpacific have soared this year, much of that increase has been driven by stricter capacity management by carriers rather than by any major surge in volumes, particularly during the third quarter.
All three alliances removed or merged loops on the transpacific ahead of the third quarter, citing increased bunker costs and lower demand, but within a month they were adding extra loaders.
“The impact on spot rates was almost instantaneous,” Drewry said. “By the end of the second quarter, west coast rates had slumped to $1,250 per feu, barely above the BCO contract levels. As soon as the carriers announced service suspensions spot rates began to climb and by the first week of September had surged to $2,350 per feu and continue to rise.”
A report from SeaIntelligence confirms the capacity management thesis.
“In the three quarters prior to the 2018 peak season, excess nominal capacity levels on transpacific were close to 1.1 m teu, with Asia-US west coast spot rates hovering around $1,300 per teu,” SeaIntelligence said.
“With the third quarter seeing excess capacity being cut to 937,000 teu, spot rates have shot up an average of $2,051 per teu. That said, spot rates for August and September 2018 have been considerably above what the trade utilisation levels would suggest.”
But it warned that carriers had yet to demonstrate the usual seasonal contraction in fourth-quarter capacity.
“This means that carriers have actually increased fourth-quarter deployed capacity in recent weeks, suggesting that they are expecting exceptionally strong demand, likely as an expectation of front-loading of first-quarter demand into the fourth quarter, prior to the China-US tariff increase from 10% to 25% on January 1,” SeaIntelligence said.