From the Editor’s Desk
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Key takeaways for the US
- Low demand on the FEWB lane due to high inflation, geopolitical instability, and inventory overages.
- Rebound is expected in early April 2023.
- On the Asia to North American route, flights are being added to the schedule by providers.
- However, full recovery is not expected until Q3, partly due to importers still selling through their existing inventory.
- Ongoing return of regularly scheduled passenger flights has led to increased capacity out of Europe.
- Delays and disruptions are expected in rail freight movements due to the rail strikes in Germany.
Read on for more in-depth updates.
Ocean Freight Market Update
Asia → North America
US / CA
Transpacific Trends and Market Updates
- Demand on the Far East Westbound (FEWB) lane via ocean transport has decreased due to a combination of high inflation, excess inventory, and geopolitical instability. However, it is expected to rebound in early April.
- Air transport routes from Asia to Europe are experiencing low demand, resulting in reduced rates and increased capacity.
- Although providers are adding flights to the schedule for Asia-North America air routes, a full recovery is not expected until Q3. This is partly due to importers still selling through their existing inventory.
- Capacity from Europe via air transport continues to rise, primarily due to the gradual resumption of regularly scheduled passenger flights.
- It is recommended to take advantage of the current soft market with abundant capacity and rates that are mostly in line with 2019 numbers for most modes and routes.
- During the 2023 ocean freight Request For Proposal (RFP) season, fixed rates are expected to settle to around 30% higher than current floating rates by mid-April.
- This would put them almost 70% lower than last year.
- The overall market conditions in Q2 will determine which way the rates will go from there, and three scenarios are most likely to take place.
- In scenario one, floating rates will remain lower than fixed rates, which could lead to service cancellations and reductions in the capacity as carriers try to close the gap between fixed and floating rates.
- Scenario two would see fixed and floating rates coming into rough alignment, which would be the closest to what we saw pre-pandemic.
- Scenario three has floating rates climbing steadily until they surpass fixed at some point later in the year. This would be the outcome if carriers pull an excess of capacity in response to spot rates dropping too low.
- To navigate the market, diversify your strategy across fixed and floating contracts, choose stable corridors, and consider indexed rates if playing the spot market.
- We recommend that you build your strategy based on fixed-rate levels, seasonality, peak season expectations, and commodity type.
- Consider signing a contract if the rate hits your financial goals, and hedge your bets if it doesn't.
- Make sure to cover more than one shipping line or alliance to avoid the risk of poor reliability.
- Fixed rates for ocean freight have decreased from last year's historic highs to near or below 2019's pre-pandemic rates, leaving importers to reassess their balance between fixed contracts and the potential cost savings of playing the spot market this year.
- During the ongoing Request For Proposal (RFP) season for ocean freight, contract rates are expected to be around $300 to $500 per forty-foot equivalent unit above current spot rates.
- There has been a slight increase in booking volume in China's space sector since the last week of March, with the average volume recovering to 80% of normal levels.
- Order books in the sector continue to be slow, as many US retailers still have excess inventory compared to their sales.
- Products related to restaurant and hotel supplies have shown some signs of recovery.
- Space on shipping routes connecting the US West Coast and the Gulf is becoming tighter due to significant blank sailing.
- In Qingdao, the issue of MSC rolling has increased to 50% on PSW services.
- MSC's supply of 20' equipment has returned to normal levels after increasing 20' ocean freight.
- Spot rates from Asia to the US West Coast (USWC) are currently at or near the bottom, with the lowest rate in the spot market being $1,000.
- However, carriers plan to maintain this rate level in the first half of April, and some services/voyages are now sailing with full loads due to a small pickup in volume since mid-March.
- Carriers plan to increase market rates from April 15th by a General Rate Increase (GRI) of $600 to $800 per FEU (forty-foot equivalent unit).
- It may be difficult to achieve the full increase, but a small amount of $200 to $300 per FEU increase is still possible by the end of April.
- In contrast, the spot rate in the US East Coast (USEC) market continues to fall, with the lowest rate currently at $1,800.
- There is little chance that the USEC rate will increase significantly in April, and the expected GRI may be $100 to $200 if applied.
- More carriers, including HPL, YML, and Cosco, have increased their 20' formula since the end of March.
- The shortage of MSC 20' equipment has improved after MSC increased the 20' price in early March.
- Negotiations for most of the 2023-2024 new contracts have been completed, although the contract details have yet to be finalized.
- The overall Minimum Quantity Commitment (MQC) with all carriers has been successfully increased this year, so the fixed rate portion will be more flexible.
- Extra Free Detention over 10 days at many destination ports and also IPI (inland point intermodal) points in the US and Canada will be available for new contracts.
- Contract negotiations on the transpacific will be delayed until the market outlook becomes clearer around the middle of April.
- The deadline for submitting the first round MQC proposal is April 10th, and carriers' offers are still pending.
Conclusions
Rates: The rates will remain soft on most origin-destination combinations.
Space: Space open, no issues with equipment.
Recommendation: We recommend blank sailings to continue. Book at least two weeks before the date your vessel gets ready to depart.
Turkey/Europe → North America
- Rail strikes in Germany have started, leading to potential disruptions to rail freight movements.
- A two-day strike at the Port of Hamburg occurred last week over wage negotiations.
- Demonstrations against the rise in the pension age in France have led to road and motorway blockades, causing delays to truck movements around the Calais region.
- Businesses are advised to work with their freight forwarders to understand and plan for potential disruptions caused by industrial action in Europe.
Conclusions
Rates: The rates will remain soft on most origin-destination combinations.
Space for capacity: No capacity issues or issues with space.
Space for equipment: No issues with equipment.
North America → Turkey
- US container imports in February saw a significant decline in volumes compared to the previous year.
- Import throughput fell by 28% to 1,454,438 TEUs, according to McCown, marking the lowest level since March 2020.
- US West Coast ports were hit the hardest, experiencing a 37% drop in import throughput.
- The Port of Houston, however, recorded an increase of 12.7% year-on-year to 131,946 TEUs.
Conclusions
Rates: Stable rates over the last week.
Space for capacity: No major capacity or space issue.
Space for equipment: Equipment issues have started owing to low levels of import.
Terminal Updates
- Due to severe weather conditions, vessels heading to North America via the North Atlantic Sea are expected to have a schedule change.
- New York terminals have 1 day waiting time for berthing and average gate turn times of 47/72 minutes.
- Norfolk terminals have half day waiting time for berthing and average gate turn times of 27/35 minutes.
- Charleston terminals have up to 1 day of waiting time for berthing and average truck turn times of 22/21 minutes.
- Savannah terminal has up to 2 days of waiting time for berthing and average gate turn times of 34/52 minutes.
- Houston's Barbours Cut Terminal has up to 1 day waiting time for berthing and average gate turn times of 47 minutes.
- Saturday gates will be discontinued after April 29, 2023.
- Oakland terminals have up to 2 days of waiting time for berthing and average gate turn times of 60/55 minutes.
- TraPac continues night shifts while OICT has no night shifts scheduled for next week.
- Seattle-Tacoma terminals have no vessel berthing delays in Tacoma, but delays of up to 2 days are expected in case of delays at departure ports overseas.
- Rail car availability fluctuates weekly, with a significant lack of cars for Union Pacific and BNSF Railways this week.
- Los Angeles/Long Beach terminals are running as published with stable dwell times and average terminal gate turn times of 30-66 minutes.
- Vancouver terminals have no berth congestion, but rail productivity is below expectations with increased dwell times of 5 days.
- Prince Rupert terminals have declining yard utilization and minimal berth delays with high vessel productivity, but rail dwell times are 8 days.
- Montreal terminals have vessels once alongside and average gate turn times of 70/40 minutes.
- Chassis Pools: All pools are operating as normal at all tracked locations.
- Intermodal Operations: Truck power can be secured within 1-3 days for the majority of locations, including marine terminals, rail ramps, and depots.
US Domestic Trucking Market Trends
- The FreightWaves SONAR Outbound Tender Volume Index (OTVI) indicates a 25% YoY decline in contract tender volumes across all modes.
- There was a 3.3% MoM decrease in tender volumes, which resulted in a 9.6% drop in accepted volumes after a significant reduction in tender rejection rates.
- According to the Cass report, December's YoY volumes fell by 3.9%, with a 3.3% MoM decline from November, indicating a gradual decrease in shipment volumes compared to last year.
- The Morgan Stanley Dry Van Freight Index measures relative to supply and shows that in December, the index indicated consistent market pressures in line with historical trends.
- Looking ahead, it is expected that there will be a softening in the market, at least until February, as seasonal demand eases in the first two months of the year.
Final Thoughts
Based on the latest updates, it can be confidently stated that the market is performing well and has adequate equipment and capacity available. To make informed decisions, it is advisable to stay informed about market trends and plans.
Unfavorable weather conditions have negatively impacted some areas, resulting in congestion and longer waiting times for vessels. However, other ports have successfully cleared their backlog and are thriving.
To avoid complications and ensure smooth import/export operations, it is recommended to consult experts and thoroughly research ports with available space and equipment.
These trends are expected to continue, with potential fluctuations in the coming days. Thank you for reading our newsletter. Remember to subscribe to receive weekly market updates.