Market Letters

Transpacific Eastbound Market Update 04/28/2020

To Our Valued Customers:

We know the situation impacting all of us is evolving hourly it seems, we wanted to continue to advise you all of what we are seeing and experiencing in the market. At Laufer, we are committed to providing you with as much information as possible as quickly as possible, understanding of course that the events are quite fluid and changing rapidly.

So here is a shortlist of what we are seeing so far today:

Market conditions – The scare of containers being left at terminals and railyards throughout the country were nothing more as importers were able to process the spike in volumes without much of an issue. The situation wouldn’t have been sustainable if container volumes in April remained strong however with the pandemic continuing a freight volume recovery is not anticipated anytime soon. Ocean carriers have removed a significant amount of capacity on the Transpacific trade which is a clear sign volume forecasts will remain weak through the remainder of the spring.

Blank sailings & potential port terminal disruptions – All three ocean carrier alliances have multiple blank sailings on the Transpacific trade over the next few weeks with the majority into the Pacific Southwest. As mentioned during the last update over 1 million TEU in capacity is being withdrawn in the months of April and May. The reduction in vessel calls and overall volumes will more than likely force terminals to reduce shifts and labor which will negatively impact local operations in terms of securing appointments for pick up of full loads and empty returns. We saw a similar situation in late February and early March at Southern California ports where shippers complained of running into per-diem and demurrage situations as appointments were difficult to secure. Do we see a repeat situation later in April and May? I would say the likelihood is pretty strong right now.

Marine fuel (VLSFO vs. IFO 380) – The gap between VLSFO (very low sulfur fuel .5%) and IFO-380 (3.5% sulfur content) has narrowed to less than $70 per metric ton forcing ocean carriers to erase earlier predictions on how fast they can recoup installation costs on vessel emission scrubbers that met IMO 2020 regulations. The cost of VLSFO per metric ton was trading around $230 vs. IFO-380 at $160 per metric ton in Singapore last week. The low marine fuel cost is one of the only bright spots in an overall dreary short-term outlook as fuel represents over 40% of an ocean carrier’s operational costs.

Marine fuel impact on long-term fixed-rate pricing – Shippers that negotiate long-term fixed pricing will see the benefit on lower fuel costs within the new 2020-21 agreements that are effective in May. Ocean carriers reset marine fuel metric ton prices under the new contracts resulting in similar rate levels that were agreed upon back in May 2019. Marine fuel fluctuates on a quarterly basis within long term fixed rate agreements with most ocean carriers and forwarders. Since the recent collapse on oil prices were, for the most part, factored into the new contract agreements the adjustment on July 1st is expected to be less dramatic.

Market Rates – Effective May 1st market rates increased by approximately $300 per 40’ container to West Coast and inland points via West Coast. East Coast rates increased anywhere from $300 to $500 per 40’ depending on the carrier. The increase in market rates can be attributed to the efficiency and flexibility the ocean carrier alliances bring to the market place. Ocean carriers were quick to remove capacity and avoid a market rate collapse. We expect only limited rate volatility over the next couple of weeks as the market closely monitors supply vs. demand, stay tuned...