The eastbound Asia to West Coast North America ocean freight market has continued its six-year run of strong demand growth, although freight rates remain under pressure ahead of the annual contracting season and US West Coast terminals are losing cargo to competitors in Canada and the East Coast, analysis by Drewry reveals.
Headhaul Asia to West Coast North America container traffic was buoyant in the third quarter, rising by 6.7% year-on-year, although a “disappointing” return for October − when volumes slid by 1.9% − weakened the year-to-date growth rate to 5%, Drewry noted.
It said: “October’s slightly weaker throughput growth is somewhat distorted by Hanjin’s collapse of a year ago − since in October 2016 the backlog of the carriers’ exports were being cleared − but while eastbound flows have been tailing off, we expect them to lift off again in January as importers replenish inventories before factories in Asia close for the Chinese New Year holidays in mid-February.”
But Drewry said the US West Coast terminals “continue to face an uphill struggle to limit the seepage of cargo either to the Canadian ports of Vancouver and Prince Rupert, or to an eastern seaboard routing”. In the first 10 months of 2017, USWC imports grew by only 1.4%, whereas discharges over the Canadian berths climbed by 18% and USEC ports saw volumes rise by 6.6%. The much smaller US Gulf Coast market recorded nearly 30% uplift in Asian imports, Drewry noted.
“Nonetheless, there is tangible growth in the market and Drewry expects the eastbound Asia-WCNA trade to surpass the annual rate achieved in 2016 of 4.6%; the 12-month rolling average showed growth of 5.7%, as of October,” the container shipping analyst added.
But the favourable demand conditions have not had a corresponding positive impact on the spot rate market “where, instead, capacity supply and fighting for share between the carriers have been more the determining factors”. Despite a number of void sailings Asia to WCNA, capacity has continued to creep up – “with the available slots up by around 10% in the final months of 2017 and January 2018, according to our preliminary findings”, Drewry noted.
“Headhaul ship utilisation remains just above 90%, usually sufficient to support freight rates, but a combination of softer demand and the influx of additional capacity has seen load factors come off from the peak months of July and August when ships were full.
“Since Chinese New Year in February, eastbound rates to the West Coast have barely averaged more than $1,450 per 40ft and, as the year end approaches, were hurtling towards the $1,000 threshold – some 30% down on where they stood during the final weeks of 2016.”
Drewry concluded: “With more capacity expected to arrive, carriers will be pinning their hopes on a strong pre-Chinese New Year cargo rush to revive flagging spots rates ahead of the annual contracting season.”