The spot rate from Shanghai to the West Coast plunging 20 percent to $1,102 per 40-foot container from the prior week, and the spot rate to the East Coast dropping 15 percent to $2,015 in the same period, according to the Shanghai Containerized Freight Index.
These disturbing declines in spot rates — available on the JOC. Market Data Hub — indicate that if there was a peak season this year in the largest U.S. trade lane, it came and went during the week that ended Oct. 30. Normally, import volumes and freight rates begin to climb in August and peak in October as retailers prepare for the holiday shopping season. This year freight rates have been on a downward trajectory since late summer, and then they plunged this week.
Ocean carrier earning reports have likewise been dismal in recent months. Maersk Line, the largest liner company in the world, reported Friday that its third-quarter profit declined 60 percent. Maersk announced that it will eliminate at least 4,000 jobs by 2017, and is cancelling or delaying options on vessel orders at shipyards, including six with capacities of more than 19,000 twenty-foot-equivalent units.
Import volumes, while not spectacular, are not the problem. JOC Chief Economist Mario Moreno in September projected that U.S. containerized imports from all regions of the world will increase 6.6 percent over 2014. Overcapacity is the primary problem as carriers continue to introduce mega-ships with capacities of 18,000 TEUs, or larger, into the Asia-Europe trade. Those vessels displace vessels of 10,000-14,000-TEU capacity, which are cascaded to other trades, including the trans-Pacific.
Spot rates got a little bump in late October when the SCFI recorded a 17 percent increase in spot rates to the West Coast and 9 percent to the East Coast, but rates dropped dangerously low this week. Anytime freight rates approach $1,000 to the West Coast and $2,000 to the East Coast, carriers are in trouble. The rule of thumb to the West Coast, for example, is that carriers need a rate of $2,000 per FEU to break even.
Nevertheless, more than a half-dozen carriers last week filed proposed eastbound Pacific general rate increases, effective Dec. 1, with the Federal Maritime Commission. The proposed GRIs vary from carrier to carrier, but were generally around $480 per TEU and $600 per FEU. Carriers must file at least a 30-day notification with the FMC. Previous GRIs this year lasted only for a week or two before eroding. In other cases, carriers were not able to implement the rate hikes.
