The BOC Blast 172 – Trans-Pacific spot rates reflect later than usual peak season

Trans-Pacific spot rates reflect later than usual peak season

Bill Mongelluzzo, Senior Editor | Nov 04, 2016 11:47AM EDT

November should signal the end of the peak-shipping season in the eastbound trans-Pacific trade, but in this unconventional year marked by the bankruptcy of Hanjin Shipping and unusually late holiday-season bookings, it is still the height of the peak season. While spot rates slipped this week, the decline was much more gradual than the week-to-week decline at this time last year, when trans-Pacific spot rates began a steady and dramatic descent that would not reverse itself until January, according to historical spot rate data on JOC.com’s Market Data Hub.

“Contrary to the norm, the market is not slumping into slow season yet. In fact, it is still hot,” a non-vessel operating common carrier said, pointing to vessel-utilization rates above 97 percent on most of the trade lanes linking Asia with the United States.

The spot rate from Shanghai to the US West Coast slipped 2.2 percent this week while the rate to the East Coast was down 1.5 percent, according to the Shanghai Shipping Exchange. By comparison, the week-to-week decline last year was 20 percent to the West Coast and 14.5 percent to the East Coast as the trans-Pacific began to resume its normal trade patterns following the peak season.

In order to secure space in this tight environment, beneficial cargo owners as well as NVOs are willingly paying more than the spot rate, which has spiked in recent weeks, and certainly more than the record-low contract rates that were negotiated by BCOs when they signed service contracts this spring.

“Even if you are very lucky and your shipment is accepted, it is probably subject to being rolled at any time,” the NVO said.

Traditionally, the peak-shipping season in the east bound Pacific begins in August with low-value cargoes such as Christmas-tree lights and decorations. Volumes build through September, and by October electronic goods and other high-value merchandise are the big movers. Volumes then drop off dramatically in November and December.

That has not been the case this year. Imports actually declined in September, with laden imports containers moving through West Coast ports down 2 percent compared with September 2015, according to numbers posted by the Pacific Maritime Association on its website. Hanjin Shipping, which accounted for about 7 percent of the trans-Pacific volume, was a major carrier in Los Angeles-Long Beach, and imports at the largest US port complex declined 4.1 percent in September, according to the PMA.

Some of the drop in imports is most likely do to the demise of Hanjin Shipping, which declared bankruptcy on Aug. 31.

“I hate that, industry-wide, we’re blaming the Hanjin bankruptcy for every negative, but it’s simply a fact,” said Rhonda Ramsay, vice president of global forwarding at IMC Global Solutions.

However, since many of the Hanjin vessels that were tied up outside of US ports in September due to financial complications were able to berth over the past few weeks, October and November import volumes could be inflated somewhat when they are posted.

In this environment where demand exceeds supply, many BCOs are quite willing to pay for space. “There is almost no space. Cargo is being rolled, so to many, space is more important than rates. Let’s not be chasing lower rates in this specific market at this time,” said Ed Zaninelli, president of Griffin Creek Consulting and former executive at Orient Overseas Container Line.

When shippers exceed the minimum quantity commitments in their service contracts, they must in effect renegotiate the rate for any volume they ship above the MQC. This rule applies whether they are BCOs booking directly with carriers or NVOs booking on behalf of multiple customers. If they do not accept a higher rate, their containers are invariably “rolled” to a subsequent voyage.

The general feeling today in the shipper community is that these conditions could continue through November.