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Home Freight News Massive rate rise on Pacific as lines “manipulate” capacity

Massive rate rise on Pacific as lines “manipulate” capacity

Rate manipulation on the Pacific trades is being called out by shippers in the US as non-vessel operator and shipping consultant, Jon Monroe argues that the lines are engaging rate manipulation.

Monroe’s claims came as Hapag-Lloyd announced a massive rate increase on the Pacific trade of US$1,200/FEU and US$960/TEU on the trade where volumes remain well below last year’s levels.

US West Coast ports saw volume throughput decline between 10% and 20% for the first half of this year. While there remains a good deal of uncertainty for the second half of 2020 given that some states are closing back down as Covid-19 infections increase. Lower volumes normally translate to lower rates.

However, Monroe believes, “Rates are still being manipulated by the carriers and are artificially high given the market demand.”

However, the lines have said that the instability in the various markets is making the prediction of volumes difficult to manage.

“Throughout the second quarter of 2020, the ongoing Covid-19 pandemic presented exceptional challenges to the container logistics industry, with a low, yet highly volatile demand putting strong pressure on our business,” Maersk told Container News.

It is a situation that Monroe acknowledges is difficult with reports that US unemployment remains very high and the recent announcement of further job losses, such as United Airlines shedding 36,000 staff by October, “Real demand is uncertain,” said Monroe.

He added that stores are not re-opening and many states and cities are re-imposing lockdowns as the virus runs rampant through parts of the US economy.

“States are uncertain what to do and in some cases the Governors have one plan while the Mayors have another. It is uncertain whether we will have back to school, Halloween or Christmas,” said Monroe.

According to Maersk the current climate makes the prediction of demand volumes very difficult. “Customers have similar poor visibility and thus shipping needs change with very short notice throughout the quarter. We continue to work closely with our customers to address this situation and find solutions amid the volatility,” said Maersk.

Nevertheless, Maersk and other lines continue to increase their income as volumes decline, demand evaporates and societies go into crisis, with the US posting record numbers of Covid-19 cases in the week, Florida has seen the number of infections increase 40% and Texas 38% and the US has reported more than 3 million cases of the virus, while 21 cities have postponed the re-opening of their industrial and retail spaces.

With the country about to enter the ‘back to school’ season, but with no decision on what or whether ‘back to school’ will happen “how will retailers decide on what to order,” asks Monroe.

He went on to say that It is expected that apparel and traditional back to school merchandise, including backpacks will be down 17% to 18% by conservative estimates.

Moreover, with the shift to e-commerce, including Walmart’s Amazon competitor Walmart+ with the company ready to move thousands of small packages consolidated into containers, it has become a symbol of how the retail landscape is changing.

“Traditional brick and mortar, particularly mall retailers, are at a big disadvantage as the retail landscape changes. We see demand tapering off in early to mid-August,” concluded Monroe.

Non-vessel operating volumes remain strong this so far this month, though there are indications that those volumes will “taper off” towards the end of July, but even though space in China remains an issue, Monroe says that spot rates are coming by up to US$250/box to the West Coast and US$100/box to East Coast destinations.

That is not a scenario that is supported by the Freightos FBX cargo index which reports spot rates hitting US$2848/FEU on 9 July, an increase of US$246/FEU from the beginning of this month.

Key US Port Import Performance. Courtesy Jon Monroe.

Nick Savvides
Managing Editor

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