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Container shortages and increasing rates add to shipper woes

Soaring Asia to US rates are expected to climb higher next week as vessel operators impose yet another general rate increase (GRI) on 15 September with container shortages compounding shippers’ difficulties even as capacity has increased.

Lars Jensen, CEO of Sea Intelligence, said that capacity on the Asia to US West Coast is up 20% year-on-year, while capacity to the US East Coast has increased almost 25% over last year.

Nonetheless, consultant Jon Monroe expects next week’s GRI will stick and that rates to the West Coast could crash through the US$4,000/FEU mark while East Coast boxes will pay in excess of US$5,000/FEU.

“The combined capacity increase and historical rate highs will make the third quarter a record quarter for the shipping lines,” claimed Monroe, adding “There is no light at the end of the tunnel, yet.”

Chinese operator COSCO has reportedly stopped taking bookings from Vietnam until October, with Monroe warning that other lines could follow suit, with the most congested routes out of the Southeast Asian country and Southern China to Southern Californian ports.

Rate rises are at least in part due to the shortages of equipment in China and Monroe reports, that in the US trucking is also suffering from equipment shortages.

“We have bottlenecks with the supply chain, equipment imbalances with a shortage of 40ft high cube containers in Asia and a shortage of chassis in the US,” explained the consultant.

Congestion in Asian ports has been caused by factories and forwarders attempting to move cargo as the US economy continues to boom.

Below updated chart which outlines the shortages by port and carrier.

An analysis of the Asia to US West Coast trades by Jensen with Zvi Schreiber, CEO of Freightos Group, suggested, “The more likely explanation [for soaring Asia to US rates] is that a combination of prudent capacity management and poor demand visibility led to these prices and the resulting profits.”

According to the joint analysis, rates out of Asia are like a good Scotch Whisky, you never know what the demand will be.

“Decisions about how many barrels to produce or how many ships to sail have to be made in advance. And the lack of demand visibility is a big contributor to China-US ocean freight rates doubling to the West Coast since June, and passing US$4,000/FEU to the East Coast – which was surprising as most analysts thought that rates and profits would freefall,” reported the joint analysis.

Capacity management of container space via the alliances has become more agile, and the carriers’ new pricing tool means that “container rates have a floor no matter the market conditions and shippers will likely need to get used to this fact”.

Extreme rate increases in June, were caused by demand creating backlogs and rollovers, “and the decision to restore capacity relatively slowly was a function of poor data visibility (as well as some endemic lag time that can’t be removed from an industry banking on the repositioning of 24,000TEU vessels). This directly contributed to the speed and possibly the size of the rate spike,” concluded the joint analysis.

As of today’s FBX (10 September) US West Coast costs are still rising with the daily rate for a 40ft container out of Asia to California recorded at US$3,720/FEU, while East Coast box rates are at US$4,472/FEU.

Nick Savvides
Managing Editor

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