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Trans-Pacific carriers pushing rate increases more often

Peak season holiday shipments on top of back-to-school merchandise are creating unprecedented demand for vessel space in June. Photo credit:

Carriers in the eastbound trans-Pacific are now pushing general rate increases (GRIs) every two weeks, rather than monthly as they had in the past, as strong demand and severe capacity constraints at Asian load ports intensify.

Further, worsening port congestion in South China is forcing some shippers to truck goods to northern ports, and this will put additional upward pressure on those trades as logistical costs within China increase.

Unlike in the first four months of 2021, when spot rates were stagnant or even edged lower each month, rates have been building since May. Spot rates from Hong Kong to the US West Coast last week were up 6.1 percent from four weeks prior, and up nearly 72 percent from a year prior, at $6,749 per FEU, according to the Drewry freight index.

Prior to June, most carriers filed GRIs with the US Federal Maritime Commission to take effect on the first of each month. Now, it appears that carriers will push for GRIs also on June 15, given the tight supply-demand conditions in the trade. Seven carriers filed GRIs of $1,000 per FEU, while Hapag-Lloyd filed a $3,000 per-FEU increase effective next week.

Although GRIs tend to be "aspirational," meaning carriers rarely end up capturing the entire amount that they file, US importers will likely see rates to the West Coast rise again in the coming week.

"I can't see any reason why carriers won't continue to push out GRIs in the current climate, but I haven't heard anything specifically," Simon Heaney, senior manager, container research at maritime research firm Drewry, told last week.

What's more, those record spot rates will not guarantee a shipper either equipment or vessel space at Asian load ports. According to rate sheets provided by individual carriers to non-vessel-operating common carriers (NVOs), space guarantees range from $1,000 to $5,000 per FEU on top of the current spot rates. One carrier offers both an equipment and space guarantee for an additional $7,000 per FEU, according to the rate sheets.

Back-to-school shipments further tightening TP space

The GRIs in large part are being driven by supply and demand economics in the largest US trade lane. US imports from Asia for 10 consecutive months were at record or near-record levels through April<>, according to PIERS, a sister product of within IHS Markit. The Port of Long Beach, the second-busiest US port for imports from Asia after Los Angeles, reported last week that May was its busiest month ever, which means that total volume for all US ports will likely show an 11th consecutive month of elevated demand.

Even though the traditional peak shipping season normally does not kick in until August, purchase orders placed with factories in Asia indicate that in addition to back-to-school products, holiday merchandise is already being produced at the factories, according to Charles van Der Steene, head of sales for Maersk, North America.

"Many retailers/importers moved production up 30 to 45 days where possible," Jon Monroe, who serves as an advisor to NVOs, said in his weekly newsletter Thursday. "Back-to-school is back. Factories are jammed and factory floors are full."

At the same time, vessel capacity in the eastbound trans-Pacific has been unusually constrained this spring, first due to congestion at US ports, particularly in Los Angeles-Long Beach<> and Oakland<>, but more recently due to COVID-19 outbreaks that have reduced dockworker availability in the port of Shenzhen's Yantian terminal<> and in Southeast Asia.

"The Port of Yantian - responsible for about 25 percent of US-bound, Chinese-origin ocean volumes - has been operating at only 30 percent capacity for two weeks now following a [COVID-19] outbreak. This has created a queue of ships that could wait 16 days to dock," said Judah Levine, research lead at rate marketplace and analytics firm Freightos.

Some carriers have begun to bypass Yantian and are diverting shipments to ports such as Shanghai and Ningbo, "only to find there is not enough equipment to handle the flood of arriving ad-hoc vessels," Monroe said in his newsletter.

These developments are generating a bidding war at Asian ports both for equipment and for vessel space. The war has only intensified of late because of growing export volumes from Asia to Europe and other trade lanes.

"The trans-Pac has less gravitational pull in terms of capacity redeployment than before at the start of the demand recovery as spot rates are now similarly lucrative in other lanes," Heaney said.

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