A COVID Shipping Environment Without COVID
There is a massive escalation in the pricing of spot rates at a pace like the one we experienced during the COVID-19 pandemic. Every two weeks for the past two months, we have seen successful rate increases in the spot market as high as $1,000 or more each time, depending on port pairs. We expect the trend to continue for at least the next 30 days, with GRIs and PSSs on June 1st and June 15th forecasted to exceed $2,000 of additional rate increases by the end of June.
What is causing these increases?
Less Supply and More Demand
Here are some supply and demand factors that demonstrate what creates this challenging environment.
Less Supply
- The ocean carriers are cutting space and creating high demand to earn more profit by reducing the supply. Trans-Pacific capacity into the West Coast has seen a reduction versus plan of some 14%, whereas the trade into the East Coast has seen a reduction of 11%. These “blank/canceled” sailings are the number 1 factor driving increased prices. The additional capacity that was supposed to be added is not happening at the pace as promised. The exact opposite occurs with these space reduction actions, which cut supply.
- The geopolitical unrest has practically closed the Suez Canal for container vessels, taking capacity out of the system and reducing the supply.
- The lack of water in the Panama Canal and construction in the Canal has limited the number and weight of vessels transiting the Canal. This restrictive activity has been improving due to recent rain in Panama, but it is still not back to normal capacity.
- The threat of labor strikes at the Canadian Rails and Canadian Ports has caused diversions and congestion as shippers try to avoid Canadian routings whenever possible. This congestion increases the supply problem as cargo bunches at ports and rails.
- There is also a growing problem of a supply shortage of empty containers in Asia due to the slow return of empties due to the longer transit times and reduced stops to pick up empties when going around the Cape of Good Hope. A container shortage adds to the pressure and increases prices as shippers compete for empties to load their products.
More Demand
- The “hoarding of toilet paper factor” is kicking in again in our shipping world. Buyers are seeing delays, rushing to place orders earlier, and making them larger. The calm, slow replenishing process that was going on at the beginning of the year is now a mad scramble to get as many goods in as possible as soon as possible. It is clear that shippers fear there will be a squeeze on capacity during the peak season in Q3 then they will start importing more goods now.
- Container volumes are forecasted to be up 10-20% for the first six months of 2024 vs 2023, as noted by various indexes creating more demand than expected.
- The threat of labor demonstrations/strikes at the US East Coast Ports, whose longshore union workers contracts expire in September, has pushed shippers to ship sooner to prepare for work slowdowns and disruption.
We recommend booking cargo as far in advance as possible and preparing for delays in moving cargo. We see many origins booked 2-3 weeks in advance. After talking to many experts, no one has convinced us of a firm date for things to return to “normal,” but we expect that most agree; this will continue through the end of July.
Please reach out to your BOC representative to help guide you through this crisis. Thank you for all your support.
