Date: Monday, December 7, 2020
Source: Freight Waves
The thinking back in August and September was that trans-Pacific container volumes would fade after China’s Golden Week holiday in the first week of October. Volumes would still be solid through December, but they’d peak around that earlier holiday.
It didn’t happen. Not even close. U.S. imports just kept coming, unabated. With three weeks left in the year, it’s virtually guaranteed that there will be no letup in 2020. Even with COVID cases surging, the next line in the sand appears to be after the Chinese New Year (CNY) holiday, to be held Feb. 11-26.
Container volumes traditionally jump in January as shippers compensate for CNY closures. This pattern increases the odds that America’s box deluge won’t end until March at the earliest. And it doesn’t necessarily have to end in March.
The trans-Pacific cargo wave should last “at least until Chinese New Year,” SeaIntelligence Consulting CEO Lars Jensen told FreightWaves.
Jensen believes import demand will fall off when Americans shift their spending back toward services at the expense of goods. “Predicting the [timing of] the letup is exceedingly difficult, as it depends on when U.S. consumers get confident about their future ability to spend money again on services such as travel, restaurants, bars, etc.”
According to Damien McClean, CEO of SIA Flexitanks, “I expect it [trans-Pacific demand] will be crazy all the way until March, after Chinese Lunar New Year.”
When FreightWaves asked Nerijus Poskus, global head of ocean freight at Flexport, how long the box boom could last, he responded, “As long as people in the U.S. are stuck at home and buying things. Of course, there are some dependencies: Whether or not there’s a new round of stimulus, furloughs and layoffs and regional lockdowns will all impact the strength in demand in 2021.”
No reprieve in December
The usual fourth-quarter moderation in import volumes hasn’t happened.
The Port of Los Angeles has a tool called The Signal showing how much container import volume is due to be handled in the current week and the following two weeks. That includes volumes expected off the ships arriving in that particular week, plus volumes off ships that arrived in previous weeks that didn’t unload the week they arrived due to congestion.
According to The Signal estimates released Friday, inbound volumes continue to increase and are on pace to hit a new peak of 177,161 twenty-foot equivalent units (TEUs) during the week of Dec. 13-19.
The daily Signal data is also an indirect indicator of congestion, because its daily estimates continually evolve. For example, if recent history is any indication, the actual throughput Dec. 13-19 will be lower as vessel unloading now scheduled for that week is pushed back to subsequent weeks.
An example of the indirect congestion indicator: On Monday, The Signal projected imports of 153,115 TEUs for the current week. By Friday, it indicated 120,642 TEUs. This implies that 30,473 TEUs or 20% of the total was delayed until the following weeks. There was the same Monday-to-Friday drop in The Signal data in the two prior weeks, implying an extended period of heavy congestion.
The San Pedro Bay parking lot
San Pedro Bay has become a veritable parking lot for container ships as trans-Pacific volumes exceed terminal capacity in Los Angeles and Long Beach. An aerial view of the situation has been posted on Twitter (link here).
MarineTraffic tracks vessels using their automated identification system (AIS) signals. As of Friday, the MarineTraffic map showed around 30 container ships at the piers in the ports of Los Angeles and Long Beach, and over 20 still anchored offshore.
Carrier actions confirm high demand
Carrier service decisions offer yet another indicator of continued import strength.
The 2M Alliance (Maersk, MSC) is omitting calls in China next week to Ningbo and Shanghai. Skipping calls indicates heavy congestion; the practice allows ships to get back on schedule.
OOCL is introducing a congestion surcharge at West Coast ports starting Jan. 1. This indicates carrier expectations of congestion into 2021.
Zim and 2M are increasing capacity on their Asia-East Coast service by 35% by switching out ships for larger-size vessels starting this month, another bullish sign for 2021 demand.
Also this month, the Ocean Alliance (CMA CGM, COSCO/OOCL, Evergreen) has added an entirely new Asia-West Coast service called Seapriority Express calling in Ningbo, Yantian and Los Angeles.
Spot rates stay in stratosphere
More evidence that there’s no letup in U.S. container import demand: Spot rates have not budged from their peaks.
The Freightos Baltic Daily Index tracks spot rates. Asia-West Coast rates (SONAR: FBXD.CNAW) have held at record highs since mid-September. The rate was $3,875 per forty-foot equivalent unit (FEU) on Thursday.
Asia-East Coast rates (SONAR: FBXD.CNAE) have kept inching up off already extremely high levels. On Thursday, rates were at $4,914 per FEU, up 5% month-on-month.
The weekly Shanghai Containerized Freight Index (SCFI) data, released Friday, put average Asia-West Coast spot rates at $3,947 per FEU, up 2% week-on-week. The SCFI estimated weekly average Asia-East Coast spot rates at $4,700 per FEU, flat week-on-week.
Shipper contract concerns rise
As intense demand persists much longer than expected, shippers are increasingly concerned about annual contract renewals.
Shippers and carriers typically renegotiate trans-Pacific contracts in the first half of the year. With spot rates potentially staying high into March — and at least some fiscal stimulus likely in the early days of the Biden administration — shippers could hold a considerably weaker hand at the table.
The China Containerized Freight Index (CCFI) tracks both spot and contract rates. This week’s composite average jumped 10.4% versus last week’s average.
Jensen commented in an online post, “This is by far the largest weekly increase in the composite CCFI contract rate index since measurements began in 1998. Additionally, the composite contract index is up 60% compared to the first week of December last year. Not even the sharp recovery in 2010 following the financial crisis saw such a large year-on-year increase.”
Xeneta tracks trends in long-term contract pricing. In a weekly update Friday, Xeneta estimated that Asia-West Coast long-term rates are up 35% year-on-year to an average of $2,236 per FEU and Asia-East Coast long-term rates are up 19% to $3,389 per FEU.
According to Thorsten Diephaus, Xeneta’s director of strategic accounts, “The [trans-Pacific] rates we see at the beginning of December … of around $2,200 [per FEU] are probably in line with expectations at the moment. The question is really how long will this last? Will we see normal behavior out of China after Chinese New Year, where volumes are down and prices collapse? Or will this remain at a very strong level?”