Ocean freight rates soar as tight capacity meets climbing demand

6/29/2020

Ocean freight rates on key transpacific lanes have risen strongly in the last week, as an increase in demand continues to meet restricted capacity.

Digital rates specialist Freightos noted that China-US East Coast prices have exceeded $3,000/FEU for the first time since July 2019, and China-US West Coast rates have reached a 30-month high, although figures from Drewry indicate that Asia-Europe prices dipped slightly last week.

Figures from Freightos indicate that China-US West Coast prices rose 14% since last week to $2,464/FEU, 76% higher than rates in 2019 at this time. China-US East Coast prices climbed 10% since last week, reaching $3,174/FEU, and are 22% above rates for this week last year.

Freightos highlighted that “June is the first month that saw two successive GRIs implemented since January 2019, which is all the more striking for happening in such a low demand environment”. It said returning demand and limited capacity “have done what tariffs couldn’t for ocean pricing – China-US West Coast rates increased $816/FEU so far this month, with the 50% June increase over the end of May setting an FBX record for monthly gains (compared to tariff-driven August 2018’s distant second at 38%).

Drewry’s latest assessment

Drewry’s latest freight rate assessments on eight major East-West trades highlighted that spot rates on the transpacific routes have continued to escalate for the last four weeks. Rates on Shanghai-Los Angeles and Shanghai-New York “soared” last week by 24% and 18%, respectively – a change of $506 and $486 to reach $2,650 and $3,207 per 40ft box. Average Shanghai-Los Angeles rates are almost double their level of this time last year, up 91%. However, rates on Los Angeles-Shanghai remained stable at $522 per feu.

Meanwhile, Drewry noted that rates from Shanghai to Rotterdam and Shanghai to Genoa dipped 7% and 1% to reach $1,650 and $1,789 for 40ft box respectively, although these figures are up 13% and 16% compared with last year. Conversely, rates on Rotterdam-New York “nudged up” by 7% or $179 to reach $2,577 and rates on New York-Rotterdam gained 2% to $518 per feu. Rates on Rotterdam to Shanghai spiked 10% or $114 to reach $1,221 per 40ft container – more than double their level of this time last year.

The composite World Container index, assessed by Drewry, increased by 8.8% or $151 to $1,866 per 40ft container. 

Drewry said it expects rates to increase slightly in the coming week.

Easing restrictions

In its analysis of the current market picture, Freightos noted that “demand for freight continued to increase this week as some states began easing restrictions and some shoppers have begun returning to stores”. It said this “demand bump combined with already tight ocean capacity from cancelled sailings to keep ocean rates climbing”. 

It noted that “some carriers even restored a couple cancellations to add some capacity to the market”, but added: “Even with the now weeks-long climbing demand, many industry observers hesitate to call this the start of a sustained rebound, with indications that consumer spending will not come roaring back any time soon. This makes the spikes throughout June even more remarkable.” 

Eytan Buchman, CMO of Freightos, noted that under normal circumstances, carriers introduce a General Rate Increase (GRI) once a month, on the 1st or 15, adding: “Only in rare, usually peak demand, circumstances do they manage to increase rates twice in a month – the last double GRIs for China-US West Coast were in October 2018 (during peak season and the trade war lead up) and January 2019 ahead of Chinese New Year. 

“The fact that two waves of increases could take hold this month (and that the dollar increase is quadruple that of October 2018) – with shutdowns and much of the world entering or in a recession – highlights how unprecedented the current situation is and how much uncertainty there is in the market.” 

He said businesses were “uncertain how much and when to order, and carriers are unsure how much capacity to keep on the market”, adding: “Whatever course the recovery takes, it seems the only certainty will be the need to live with uncertainty and the bumps along the way.”

Customer perspective

Meanwhile, in its latest ocean freight market update on Wednesday, US freight forwarder Flexport confirmed many of these trends, noting that Asia-US West Coast markets had seen rates increase, with a 15 June GRI implemented and a further GRI set for 1 July. It said vessels were “very full” from all ports of loading. For Asia to the US East Coast, it reported a similar picture, but said capacity from Taiwan was “easier”.

For US exports to Asia and to Europe, it noted that rates were steady but highlighted that “space and equipment are tight”, urging customers to book 10-14 days in advance. 

On Asia-Europe, it also reported rates had increased, with a 15 July GRI implemented, and a further GRI due on 1 July. It said space was “under pressure” and noted that carriers have begun to suspend service for all of the third quarter, urging customers to book three weeks prior to cargo ready date.

On the Transatlantic westbound lane, it says rates had decreased from Europe to the US West Coast and East Coast. For services from Europe to the US West Coast, it said space was manageable but urged customers to book 10 days prior to the cargo ready date. From Europe to the US east coast, it said space is currently under pressure, urging clients to book at least 14 days prior to the cargo ready date.