Market Conditions – The traditional slack season is well underway, and many importers are finding capacity easier to secure on base China to US port to port routings. Routings with transship ports remain a challenge as well as those to US destinations that have limited direct calls such as the Gulf ports. A staggering 1.4 million TEU of capacity was at anchor or adrift on the Transpacific market during the month of February - dominated by a significant percentage parked off Southern California. Despite the backlog on the water, the number of vessels waiting to berth off Southern California continues to decline with approximately 55 vessels in the queue.
Due to slack season, we expect capacity to be readily available through the remainder of March and probably well into April. Importers’ domestic inventory levels are anticipated to steadily increase and consumer spending shift from product to services as the pandemic finally eases and a sense of normalcy returns to the market.
Market Rates – As demand eases for at least the short-term, most ocean carriers extended rates through March 14th without any increases from February levels. We are seeing ocean carriers release a higher percentage of FAK costs versus premium costs which comes as welcome relief to the import community. Premium rates remain the primary source of capacity for the more difficult port pairs on both sides of the pond. All origin transshipment ports continue to see limited FAK rate availability as ocean carriers have sufficient demand from direct call ports and look to limit origin port storage fees at transship locations.
The same applies for US destinations where ocean carriers continue to limit availability of FAK costs for inland rail ramps that historically require empty repositioning of equipment back to ocean terminal. US port destinations that have limited port calls such as Miami, Jacksonville, Boston, and Gulf ports are also seeing a higher percentage of premium rates moving the freight versus FAK.
We expect the downward pressure on premium rates to continue with the entrance of new carriers such as CUL, BAL, SEALEAD and others that are starting to focus on consistent service lane offerings for the 2022 shipping season. Stay tuned for the release of our Laufer Group 2022 Service Guide that will break down all services on TPEB trade.
ILWU Contract Negotiation Update or Lack of? – Since the ILWU rejected the Pacific Maritime Association’s (PMA) request to extend the current contract by another year, contract negotiations have yet to start. The ILWU certainly has leverage on their side and will pressure the PMA to limit terminal automation and seek additional compensation. Rumor has it the ILWU negotiators are looking for a slice of the revenue pie generated by the ocean carries after a record year of profitability – a 2021 figure estimated in the neighborhood of $175-$200 billion dollars!
The lack of dialogue is not a good start and certainly the import community is taking notice. The potential disruption will certainly place additional pressure on alternative ports to manage discretionary cargo where possible along with East Coasts for importers that have four corner distribution networks already in place.
China Omicron Outbreak Impact – The highly contagious omicron variant is now significantly impacting many cities in China. Southern China manufacturing hubs such as Shenzhen and Dongguan areas have been particularly affected and both general and bonded warehouses have been forced to close from March 14th through March 20th. Terminal operations in Yantian and Shekou are so far experiencing normal operations. However, truck drivers most show a negative nucleic acid result within 24 hours when entering the terminals. Northeast China is also facing the challenge of the omicron variant virus spread, with many areas experiencing the highest infection rate since the pandemic started back in early 2020. We are hearing reports of temporary factory closures around Shanghai and quick local government enforcement of lock-down measures to prevent the spread. The temporary factory closures and stay at home mandates will impact production, to what extent will be determined on how long it lasts.