Market Conditions – The summer shipping season is approaching, but it's not all smooth sailing. Several disruptions loom, including the ongoing Red Sea crisis, the potential for a CN rail strike or lockout later this month, and a similar threat with the East Coast ILA by October. Despite these challenges, strong import volumes are expected to continue through the second quarter. Additionally, news of increased Panama Canal transits by June 1st is a welcome development for the shipping community.
One less obvious factor this season is the ongoing influx of new container ship capacity, with an estimated 300,000 TEU hitting the water each month in 2024. However, this will not necessarily translate into pre-pandemic shipping rates. Carriers are likely to implement capacity controls to maintain profitability. We are already seeing evidence of this in May's market: skyrocketing short-term rates and twenty-six blank sailings announced by ocean carriers will help keep capacity tight and rates well above average.
Market Rates – One word to sum up the current Transpacific market is “volatile.” Rates skyrocketed by over $1,000 per container on May 1st, exceeding most expectations. This jump further widened an already significant gap between these sky-high spot rates and long-term contracts signed earlier in the month, which were locked in at levels around $2,500 less per 40-foot container. Such a large difference is highly unusual for this trade lane.
Expect tight capacity to continue throughout May. With many blank sailings scheduled throughout the month, any softening of rates will likely be slow, especially for ports in Southern California. An additional factor impacting rates is the looming possibility of a labor strike or lockout at Canadian National (CN) railways later this month. This could push some cargo originally destined for Canada towards the Pacific Southwest (PSW) and US East Coast (USEC) ports, keeping overall rates elevated well into the summer shipping season.
Allocations Delays – Ocean carriers are reporting a delay in new filing contracts, impacting both BCO direct contracts and NVOCC contracts. In many circumstances, the contract filings will not take place until China offices open after the holiday. If new contracts are not implemented and effective in Week 19, it will be late May to early June before new allocations are likely to start moving. The timing delay comes as unwelcome news for shippers as the spot market is significantly higher than their newly signed long-term agreements. Furthermore, with ocean carriers expected to implement peak season surcharges by June 1st, how much capacity will be released prior to this date is in question.
Peak Season Surcharges Effective June 1st – Starting June 1st, ocean carriers will add peak season surcharges to existing fixed-rate contracts, aiming to narrow the gap between those rates and current market prices. This surcharge will likely apply to the first containers shipped under these renewed contracts.
Once implemented, the surcharge is expected to stay in place throughout the peak season or until market rates drop considerably. While market rates can fluctuate rapidly, it's unlikely they'll fall below the fixed rate plus the surcharge in the near future.
Fog Delays in Shanghai and Ningbo Ports – In North Central China, spring and fog season has led to increased port congestion over the past few weeks. This has resulted in average delays of 2-5 days at ports, with some vessels experiencing even longer delays of up to 7 days. Consequently, overall transit times have increased significantly compared to originally scheduled times.
CN Rail Employees Vote and Approve Strike – Canadian National (CN) railroad workers are poised to strike after overwhelmingly voting in favor. The 21-day cooling-off period ends on May 22nd, after which a work stoppage could cause significant disruptions to both Canadian and U.S. markets. Port congestion is already an issue, particularly in Vancouver, where cargo is waiting an average week to be loaded. Prince Rupert is faring slightly better with wait times of just a few days. Ocean carriers are bracing for impact, potentially canceling additional ship departures (blank sailings) if a strike seems likely. To avoid potential delays, many shippers are taking action by rerouting non-essential cargo (discretionary cargo) to other ports. This means longer lead times, but it's a trade-off many are willing to make to avoid the risks of a strike We expect RIPI (reverse inland port intermodal) ports such as Norfolk and New York to see increased volumes as shippers choose them over those potentially affected by a strike.
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