Container volumes reached their 2023 peak in September and levels are expected to slowly drop through the remainder of the year. Based on shipper forecasts, ocean carriers have been implementing aggressive winter programs in the short-term. Many analysts believe volumes will remain higher than pre-covid years through the end of 2023. However, with record amount of new capacity continuing to roll out of the shipyards, downward pressure on freight rates will likely remain in the market until pre-Chinese New Year volumes potentially lift the market in January.
The November 1st general rate increase has held steady at USEC base and Gulf Coast ports through November 10th. However, nearly half of the increase has already been lost at USWC base ports. Ocean carriers have been able to maintain relatively healthy rates at USWC ports throughout the peak season due to the high demand for e-commerce deliveries and the aggressive blank sailing programs implemented by carrier alliances. We expect market rates to continue to decline at USWC and USIPI ports through the remainder of the month. USEC rates are likely to decline more slowly, as ocean carriers remove capacity from the sub-trade later this month. Ocean carriers have announced another round of rate increases for December 1st. However, we are skeptical that this increase will be successful, as market volumes are slowing down with the start of the slack season.
Ocean Carrier’s Winter Programs
THEA has suspended their EC4 service in addition to their already suspended Pacific Northwest service. OCEAN Alliance will also start rotating blank sailings between two of their East Coast services, but they have not provided any specific dates to the market. It is common for ocean carriers to reduce services during the slack season, but this does not help shippers navigate what should typically be a tranquil period in the market. The combination of blank sailings, which continue to create rollover situations on certain sub-trades such as the Pacific Northwest, and slow steaming is reducing service predictability, which had greatly improved during the second half of 2022. How fast market volumes drop will determine how aggressively ocean carriers reduce capacity in the near term. However, all signs point to carriers strategically attempting to balance supply and demand to keep rate levels out of the basement.
Ecommerce Drives Resurgence of Express Services to SCAL
Ocean Alliance (OA) services into Southern California are recognizing higher market rates than most other carriers because of their speed to market services for e-commerce shippers. This cost saving alternative to airfreight is popular with shippers who need guaranteed loading, no roll, expedited availability at destination, and a predictable transit time to Long Beach and Los Angeles terminals. As e-commerce continues to grow, the demand for these services is only expected to increase. Other ocean carriers are listening to their customers and launching new services to meet this demand. CMA and ZIM are launching speed to market services in the second half of November. These services will offer the same guaranteed premium at a varying cost of approximately $1,000/40' over standard market rates.
Vessel Transit Times on The Increase Once Again
As ocean carriers implement operational service changes to balance supply and demand, these actions will inevitably lead to longer transit times. Rollover chances increase due to blank sailings, especially for containers that require transshipment. For example, a container loading out of Indonesia may have to wait an additional week (or more) at the transshipment port due to a blank sailing, usually without prior notice from the ocean carrier.
Where delays were previously impacting only vessels without appointments, ocean carriers are also beginning to face delays at the Panama Canal due to the drought. The Panama Canal Authority will decrease the number of vessels per day that can make the crossing, and the cost to jump the line is soaring - Maersk recently paid an additional $900,000 to secure an earlier transit. As a result, transit times will suffer, and coupled with slow steaming, can easily add an additional week over pro-forma transits.