12.1 C
Hamburg
Friday, March 29, 2024
Home News FMC monitors lines as SCFI breaks US$3,000 bar

FMC monitors lines as SCFI breaks US$3,000 bar

Aggressive capacity management by carriers, currently being monitored by the Federal Maritime Commission (FMC), has pushed the US west coast Shanghai Containerized Freight Index (SCFI) into uncharted territory with spot rates breaching the US$3000/FEU barrier for the first time in the history of the index.

Impressive discipline from container lines coupled with demand has belied the 33% contraction in the world’s largest economy in the second quarter of the year, pushed the index to a historical high at USD$3,167/FEU.

Last week’s US$463 increase, a 17% increase from the previous record of US$2,704/FEU, pushed the index to its highest point since the index was launched a decade ago. Rates for the US east coast were also up US$226/FEU to US$3,495/FEU.

Riding the unexpected wave and holding on tight to the some of the EBITDA gains posted by market leaders, Maersk Line, Hapag-Lloyd, CMA CGM and COSCO in the first quarter of the year, carriers are pushing for a further round of rate increases in August with demand looking even stronger for this month than July.

Freight forwarders expressed their surprise at the performance of the index but weren’t convinced that the bull run would extend beyond August.

“I don’t think that spot rates can go any higher,” says Jon Monroe, president of Jon Roe Consulting and a representative of NVOCC Worldwide Logistics. “September factory orders are looking a little bit weaker, but they are looking strong for August and I would imagine they are going to be similar to July.”

“The carriers have definitely learned to control capacity and keep rates up. Right now I think they are trying to get as much business as they can to make money. August is looking as good as July,” he says.

Carriers cut back on capacity early in the year to reduce supply following the rapid shutdown of Chinese production.

Late last month the US Federal Maritime Commission (FMC) issued a statement on the lines’ capacity management campaign through FMC Chairman Michael A. Khouri, who said the regulator would monitor rates into the US.

Khouri said that some lines had responded to the sharp decline in cargo volumes when the pandemic hit the US by reducing capacity through cancelled sailings “to adjust available capacity to coordinate with the lower demand”.

“Such actions are permitted under the Shipping Act so long as the joint actions do not violate section 6(g) of the Shipping Act by resulting in a substantial reduction in competition which produces an unreasonable reduction in transportation service or an unreasonable increase in transportation costs,” concluded Khouri.

According to the FMC chairman the regulator uses a four-tier approach to monitoring of vessel capacity management. In the first instance advance notifications of cancelled sailings are reviewed to see if an alliance has reduced capacity by more than 5% of average weekly sailings.

Second tier monitoring consists of looking at individual alliances and minutes from meetings with senior decision makers within each line on capacity deployment, in an effort to assess the medium to long term outlook on rates by capacity cuts.

Third tier monitoring analyses the deployment of capacity by individual lines, any changes made and the impact of those changes, if any. Finally, confidentially filed data submitted by the lines to the FMC are analysed for accuracy and to see if this “reveals any potential red flags”.

According to Khouri FMC staff are now actively monitoring alliance capacity changes for any potential effect on freight rates and service levels.

Khouri added, “The unusual circumstances and challenges created by the Covid-19 pandemic together with trade agreement changes have heightened the FMC’s scrutiny of capacity reductions by global alliances.”

Danish consultancy CEO Alan Murphy wrote in his weekly column, Sunday Spotlight, had highlighted that “On Asia-North America West Coast, carriers have un-blanked 30 previously announced blank sailings for Q3. Of these 30, 22 were un-blanked by THE Alliance.”

Murphy went on to say, “THE Alliance blanked capacity too aggressively and have dialled it down keeping in line with the other alliances.”

Rainbow Blue Nelson                                       Additional reporting from Nick Savvides Americas Correspondent                                  Managing Editor





Latest Posts

Port Houston achieves container export record

Port Houston's terminals achieved a container volume surge of 20% compared to the same month last year, reaching a total of 375,965 TEUs. In the...

Government of Canada allocates over US$12 million to Pie-IX Railway Bridge Project

The Port of Montreal celebrates the allocation of US$12.36 million in funding, announced on 25 March by Pablo Rodriguez, Minister of Transport and Quebec...

Onne Port opens new in-gate facility

APM Terminals-operated West Africa Container Terminal (WACT) anticipates a significant enhancement in efficiency and security with the official inauguration of a new four-lane in-gate...

Wan Hai names new 13,100 TEU ship

Wan Hai Lines recently held a ship naming ceremony for WAN HAI A15 at the Samsung Heavy Industries Geoje shipyard, coinciding with a charity...

CMA CGM celebrates dual launch of 15,000 TEU LNG vessels

French shipping company CMA CGM celebrates a "significant milestone" by launching two 15,000 TEU LNG container ships, CMA CGM Maui and CMA CGM Big...