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Xeneta: Carriers drive up ocean freight rates on main Far East to USWC trade with savvy capacity cuts

After a year of plunging ocean freight rates, carriers appear to have turned the tide on the key China to US West Coast trade, driving up spot rates by 73% since the end of June.

In a blow to shippers, many of whom have been reluctant to sign new contracts in an atmosphere of uncertain US consumer demand, long-term rates appear to be following suit. The latest market data from Oslo’s Xeneta shows that contracted rates on the corridor are also on a firm upward trajectory, having climbed 25% since the lows of June.

Xeneta’s data, crowd sourced from leading shippers worldwide, has painted a bleak picture for carriers over the course of the last year, with nosediving spot rates and long-term contracted prices slumping by over 60% since last summer. However, as Peter Sand, Chief Analyst at Xeneta, explains, a group effort by carriers to regain a sense of control appears to be paying dividends.

"Capacity management is king when it comes to controlling rates, and faced with weak demand and a surplus of vessels it was clear to carriers that something had to be done," he says.

"What we’ve seen in response to that are some very bold, united moves from the industry that, it seems, are succeeding in turning the tables."

Capacity cuts

"In the second quarter of 2023, carriers collectively reduced offered capacity from Asia to the North America West Coast by 7% year-on-year, hoping to deliver a rates ‘shot in the arm’. However, General Rate Increases (GRIs) implemented in mid-April and early-June failed to stick. Undaunted, they doubled down on this tactic, moving to slash capacity by 14% year-on-year in July and August. Did that work? The data provides a clear answer."

Sand reveals that spot rates on the trade currently sit at an 11-month high, having climbed to US$2,200 per FEU. Furthermore, long-term contracts are also on the way up, with agreements entering validity in August now exceeding the US$2,000 per FEU mark.

In a sense, Sand comments, the carriers "have outsmarted the shippers here."

Surprise, surprise

He notes, "This may come as a nasty surprise to some shippers, who have become accustomed to falling rates and, in the face of uncertain consumer demand, have held back from signing new long-term contracts. Now they’re in the difficult position of seeing strong rates growth before they’ve put pen to paper on a new agreement. This, and any further delays, could prove to be very costly."

According to Xeneta, with the collective effort from carriers – and the fact that nervous shippers may now have to lock-in volumes – rates are likely to continue their upward trend during September. Furthermore, added upward pressure could be exerted by the arrival of China’s Golden Week holiday in the first week of October, as Sand points out,

Going for gold

"In normal years we see a boost in offered capacity before the shutdown and then a reduction afterward, but, as we know, 2023 has not been a normal year.

"Carriers are now laser-focused on managing capacity diligently to retain rates control, so they’re actually already announcing blanked sailings for week 39, the week before the holiday, and week 41, when it concludes. Further announcements are expected in the weeks to come, so we can see there’s a clear, collective effort to get the supply/demand balance right and maintain rates at the levels they want.

"Shippers need to be aware of this,” he concludes. "Savvy management from the carriers demands an equally proactive approach from shippers, with a clear picture of rates development to get the value their businesses need. There’s no room for complacency in the world of ocean freight rates negotiations and, in such a dynamic situation, that’s never been truer than it is now."

Xeneta is an ocean and air freight rate benchmarking and market analytics platform transforming the shipping and logistics industry.

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