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Spot rates rise 9% to $2,730/FEU on Asia-US West Coast route at midweek
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Market indices show rates on Asia-US East Coast and Asia-Europe falling despite 26-33% capacity cuts by carriers through blank sailings
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Analysts say the capacity reductions have so far bought capacity to near pre-pandemics levels as carriers have added simply too much capacity
Asia-US West Coast rates rose this week, with analysts saying big capacity cuts in recent weeks were simply insufficient to halt a slide in spot rates because carriers added too much capacity last year that the reductions merely brought underlying capacity near 2019 levels.
Spot rates on the Asia-US West Coast prices on Freightos Baltic Index (FBX01 Daily) reversed this week, rising 9% to $2,730/FEU at midweek, then plateaued at that level after dipping below $2,000 last week. Freightos said the rate rally was perhaps due to the capacity cuts.
Both Freightos and Drewry, however, reported rates declining on the Asia-US East Coast and Asia-Europe routes this week despite the capacity reductions.
Asia-US East Coast prices (FBX03 Daily) fell 9% to $6,026/FEU, and are 71% lower than rates for this week last year.
“West Coast rates rebounded slightly this week, possibly a result of carriers removing capacity, though the canceled sailings have not been widespread yet. Some observers are now suggesting spot rates could recede to 2019 levels by the end of the year,” said Judah Levine, head of research at Freightos.
Supply chain advisors Drewry said its composite World Container Index fell 6% year on year this week to US$3,483 per 40-foot container (FEU), its 33rd consecutive weekly decrease.
The latest Drewry WCI composite index is 66% below the $10,377 peak in September 2021 and 7% lower than the 5-year average of $3,732, indicating a return to more normal prices. It remains 145% higher than average $1,420 before the 2019 COVID outbreak.
The average composite index for the year-to-date is $7,402 per 40ft container, which is $3,670 higher than the five-year average ($3,732 mentioned above).
Drewry said freight rates on Shanghai-Los Angeles dropped 13% or $376 to $2,619/FEU. Spot rates on Shanghai-New York fell 8% or $566 to $6,321/FEU. Likewise, Shanghai-Genoa and Shanghai-Rotterdam dipped 4% and 3% to $4,736/FEU and $4,595/FEU, respectively.
Rotterdam-Shanghai rates slid 5% to $915 while Los Angeles–Shanghai slipped 4% to $1,175/FEU. However, Rotterdam-New York gained 1% to $7,295 and New York-Rotterdam rose 2% to $1,336/FEU. Drewry expects the index to fall in the next few weeks.
Sea-Intelligence Chief executive Alan Murphy said on October 13 that on the weeks following China’s Golden Week holiday, carriers are taking out significant levels of capacity per week on the Asia-North America West Coast that are not only higher than in 2019, but have also increased from what was scheduled three weeks ago.
“However, even with an average 26-31% capacity reduction (over weeks 41-43) on the Transpacific and 19-27% … on Asia-Europe, freight rates on these trades continue to fall considerably,” Murphy said.
“Carriers added so much capacity during last year, that even with these levels of capacity reductions, the underlying capacity has still only been brought in line with 2019.”
He said for weeks 41-43 this year, Asia-North America West Coast is scheduled to see capacity grow by 1.9% annualised over 2019, while Asia-North America East Coast and Asia-North Europe are slated to see even larger capacity increases of 3.1% and 5.1%. Only Asia-Mediterranean is contracting, by 1.3%, Murphy said.
He said the peak cuts during the initial COVID impact were 35-53% but lasted for only 1-2 weeks before reductions fell to 10-30% for a few more weeks.
“Carriers are already within the latter range now, and a 50% reduction in deployed capacity will not only create significantly more supply chain problems, but will also likely have the cargo owners up in arms,” Murphy said.
“There is a very delicate balancing act for the carriers to follow from here on.”
Christian Roeloffs, cofounder and CEO of Container xChange, an online container book, managing and payment platform, described the slowing demand and oversupply of containers as “a classic boom and bust cycle.”
“There is a relatively low orders-to-inventory ratio. The retailers and the bigger buyers or shippers are more cautious about the outlook on demand and are ordering less. On the other hand, the congestion is easing with vessel waiting times reducing, ports operating at less capacity, and the container turnaround times decreasing, which ultimately frees up the capacity in the market.”
Roeloffs said another key trend is the early signs of companies trying to diversify their sourcing strategy with Vietnam emerging as one of the key sourcing hubs, with high demand for a cargo-worthy 40-FEU high-ceiling container in Ho Chi Minh City pushing up prices and pick-up rates of the box.
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