Update on TransPac Rates
Ocean container rates from Asia to the U.S. West Coast have more than doubled since March, topping $3500 in the spot market this week. Ocean rates have been on a meteoric rise because of a perfect storm of global factors centering around the COVID-19 pandemic. Equipment scarcity, blanked sailings, reinvigorated PPE shipments, and people stuck at home online shopping instead of going out for entertainment are outpacing the space available on ships. Even the charter market is on fire. Rates have been climbing by $1000 a day for the last two weeks.
Rates for the east coast are also up by one-third since March, with only ocean cargo from Europe to the east coast showing a decline of around 2%. The rate surge has provoked China’s Ministry of Transport to open an inquiry into the cause behind it. Cosco, Maersk, MSC, CMA CGM, Hapag Lloyd, and Evergreen are being questioned as to why the rates are climbing even though the blanked sailings have mostly been reintroduced and capacity isn’t an issue. It stands to reason the initial climb happened because blanked sailings reduced supply as people expected demand to drop with social distancing and quarantine protocols. That demand drop never really materialized in a significant way.
One initial issue that has extended through the pandemic is the trouble matching the equipment available to the locations in need. Because sailings were blanked, equipment couldn’t move out of ports to get to destinations, be emptied, and turned to carry new cargo. Equipment stacked up, chassis included, and caused significant disruption.
We also heard many early stories of massive PPE shipments traveling by air on cargo planes or in belly and passenger space on “phreighters.” At this point, shippers have more likely chosen to start moving these large shipments by ocean to save shipping costs because there’s less critical demand for urgent arrivals. The increase in PPE shipments and the online shopping spike are creating a transportation boom for ocean freight right now, which became problematic when capacity was reduced on an incorrect forecast.
If we look back at the news from late March, there was chatter about container contract rates showing their first pricing decline that prompted some to speculate a recession was on the horizon. That’s an important reminder to keep in mind right now. Spot rates might be astronomical, but contract rates, as the name implies, are contractually agreed to and locked in, general rate increases notwithstanding. Unfortunately, we’re now seeing that even those rates aren’t bulletproof in this situation. The movement in the market has been so steep that even contracted lanes are requiring hefty peak season surcharges and guaranteed service upgrades to ensure timely delivery.
Putting it plainly, this is a situation when almost everyone can do everything right and still be impacted by market forces and missed forecasts. TOC contracts rates to protect against pendulum swings of uncertainty. Our goal is to insulate our customers to the best of our ability against market fluctuations, but at this point, even the best-laid plans were incapable of protecting everyone from these adjustments.
But we’re not out of the fight yet. Through unparalleled ocean disruption, we’re still in your corner working with our carriers to secure the best value, schedule, and routing possible to guide you through this. Reach out to your TOC representative to discuss the ways we can assist you with your trans-Pacific ocean cargo.
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