Lines push up rates ahead of Chinese New Year

Asia-US East Coast freight levels rise ahead of festivities but capacity increases are a concern for 2018

Container lines have succeeded this month in increasing freight rates by nearly one-fifth on the trades between Asia and the US East Coast (USEC).

But plans by SM Line to launch a new transpacific service are among the developments that threaten the delicate recovery of spot rates in the transpacific trades.

Spot rates on the trade from Shanghai to New York have risen by 18% after general rate increases (GRI) implemented earlier this month. Last week, freight rates rose a further $429 to $2,869 per 40-ft container (feu), according to the World Container Index (WCI).

That means carriers have pushed up rates by around $1,000 per feu in the first few weeks of the year, reversing what has been a downward trend over the past 12 months, Drewry said.

As a result, forwarders reliant on the spot market have been cashing in and are steeply increasing the freight pricing from China, according to container booking portal Freightos.

But some analysts are concerned that the rise is unsustainable and merely reflects a temporary surge in demand ahead of Chinese New Year.

That would be a worry for liner operators as freight rates on many trades remain way down on the same period last year.

China-USEC rates lag by 24% and China-US West Coast rates are a jaw-dropping 33% down, according to Freightos.

The level at which rates settle after the Asian holidays is deemed crucial in determining the grade at which contracts for the coming 12 months can be negotiated.

Drewry said the ability of lines to maintain rates would depend on carrier capacity management and pricing discipline. It believed the final resting point of spot rates after the Chinese New Year would set the benchmark for annual contract negotiations.

There were indications that carriers were beginning to cut back on capacity.

On Monday, The OCEAN Alliance announced the withdrawal of an eighth voyage by cancelling the 8,465-teu CMA CGM Attila (built 2011) from its China-New York East Coast China 2 (ECC2) sailing on 29 February. It had already unveiled plans to void seven sailings before that.

But so far, the planned 2018 capacity reductions on the Asia to USEC route falls well short of previous years, according to Danish analyst SeaIntel.

Planned capacity drops during the Chinese New Year period amount to 5.4% of total capacity, compared with 10.4% and 13.6% between 2015 and 2017.

It said this meant an additional 30,500 teu — or four average-size sailings — needed to be blanked to match previous years. But that may be difficult, given that new entrants plan to build up their transpacific services.

Transpacific launch

Yonhap agency quoted SM Line chairman Woo Oh-heun as unveiling plans to launch a new transpacific service in May using six 4,000-teu boxships.

The service will trade to the Pacific North West — the shortest route between the US and China — and adds to a transpacific service launched last year linking China and South Korea to Long Beach, California.

The Asia-USEC trade has benefited from firm demand in the past year and grown significantly faster than container volumes to the West Coast of the US, according to Drewry.

That is a reflection of larger containerships trading to the region since the opening of the enlarged Panama Canal in 2016.

The average size of ships on the Asia-USEC service via Panama had grown by 10% over the past 12 months, with 14 vessels of 10,000 teu each on parade, Drewry said.

It expected container volumes to the USEC to continue to grow this year but that the difficulty facing lines in juggling supply and demand might prevent carriers from benefiting from significantly higher freight rates.