Most ocean carriers on the eastbound trans-Pacific are extending their current spot rates through the end of January, a sign that liners are losing pricing power even before the trade enters its weakest month of the year.
Three of those carriers — including Hapag-Lloyd — are even taking the uncommon step of offering customers guaranteed rates into mid-February, sources say.
Those pricing moves mean a general rate increase (GRI) planned by carriers for Jan. 15 will not be implemented, forwarders told the Journal of Commerce, because demand, while strong enough now to support the current rate level, is not sufficient to support another boost.
“We’re not only getting two-week [guaranteed] rates, we’re [also] getting 30-day rates to Feb. 15,” said Christian Sur, executive vice president of ocean freight contract logistics at the forwarder Unique Logistics International.
The fact that Hapag-Lloyd and two smaller lines that sources identified as Wan Hai and SM Lines have extended their rates for a full month to mid-February is especially significant because carriers normally guarantee rates for only two weeks. The advanced undercutting suggests carriers expect capacity to outpace demand even more in the coming month, further eroding pricing power.
Lunar New Year factory closures
The weakening market is driven by the reality that many factories in Asia will soon close for a week or two for the annual Lunar New Year holiday that begins Jan. 29. By guaranteeing spot rates through the end of the month, carriers are attempting to build “roll pools” of containers at Asian load ports to carry them into February, said James Caradonna, executive vice president at the forwarder M&R Spedag Group.
“Space is still OK, but some carriers are not as full as others,” Caradonna said, adding some carriers are willing to provide customers the space they want even if they exceed the minimum quantity commitment (MQC) in their contracts.
Carriers confirm that with the Lunar New Year holidays approaching, further rate hikes are unlikely.
“Rates are coming down pretty fast to the West Coast,” a carrier executive told the Journal of Commerce.
A second carrier source acknowledged: “It seems like rates have crested and are drifting lower.”
Spot rates from North Asia to the West Coast were $4,700 per FEU as of Jan. 13, down 10% on the week, according to Platts, a sister company of the Journal of Commerce within S&P Global. East Coast rates of $6,000 were down 7% from last week.
Customers also have access to discounts provided by so-called “bullet” rates, which are special commodity- or trade lane-specific rates that are lower than the posted spot rates and freight-all-kinds (FAK) rates paid by forwarders.
“The promotional rates are starting to proliferate,” said Kurt McElroy, executive vice president of the forwarder Kerry Apex. Bookings for shipments into February have peaked and will only decline further, he said, adding special rates to the West Coast are in the low $4,000s.
An industry consultant who did not want to be identified said the fact that some carriers are extending current spot rates into mid-February indicates the drop in demand is accelerating. And that means some customers may choose to delay bookings of non-essential merchandise to see if spot rates decline further during the factory closures in Asia, the source said.
Now that the International Longshoremen’s Association (ILA) has reached a tentative contract agreement with East and Gulf coast employees, averting a second strike, shippers are focusing primarily on what the tariff policy of President-elect Donald Trump will be after he takes office Jan. 20.
If the higher tariffs Trump has threatened do not take effect on day one of the new administration but are staggered into the spring and summer, the eastbound trans-Pacific will experience a “massive frontloading” of imports, McElroy said.
