Market Rates and Trend Forecast

February 1st, 2019

Ocean Freight

Ocean freight rates for the first half of April has increased by approximately US$300/FEU to both the USWC and USEC. Part of the rate increase can be attributed to higher demand and ocean carriers’ attempt to prop up spot rates in time for more favorable annual service contract rates. Laconic is also forecasting a surge in demand in the second half of 2019 in response to the impending low-sulfur mandate from the International Maritime Organization (IMO) that is set to be implemented in 2020.

Contract Negotiations

Annual trans-Pacific cargo contracts typically run from May 1st to April 30th with negotiations taking place beginning in late March. A surge in demand during the second half of 2018 due to the U.S./China trade dispute led to a price surge in ocean freight rates followed by a substantial decline after President Trump temporarily halted further tariff implementations.

A combination of poor service levels and schedule reliability, an impending global low-sulfur fuel mandate from the IMO that is certain to increase operating costs and declining post-front-loading freight rates leaves ocean carriers in a tough position to negotiate preferable annual service contract rates. As a result, ocean carriers filed for price increases in April to place themselves in a more favorable position through using current spot rates as a leverage for higher service contract fixed rates.

Global Trade Downturn and Economic Indicators:

Global trade fell 1.8% in the three months through January compared with the previous period which is the largest drop since May 2009. On a month-on-month basis, global trade volumes were up 2.3% in January but fell almost 4% over November and December. These figures are reinforcing a view that the world economy is in its worst state since the financial crisis a decade ago. Chicago Federal Reserve President Charles Evans and IMF First Deputy Managing Director David Lipton have also echoed “risks from the downside scenarios loom larger than those from the upside” and “growing risks and uncertainties including protectionism and U.S.-China trade tensions”.

Other indicators such as auto sales are also showing signs of slowing and U.S. GDP is forecasted to decline to 2.7% in 2019 from 2.9% in 2018 with the prospect of a further downward revision.

U.S./China Trade Dispute – Update

Negotiations are still ongoing with Chinese negotiators set to arrive in Washington this week after hosting the U.S. team in Beijing last week. Both teams have touted “new progress” and “constructive talks” where they have been working line-by-line through the translation text of an agreement while continuing to negotiate on outstanding unresolved issues. We remain optimistic that both governments will be able to reach an agreement while many experts also view that it is in both leaders’ best interest to resolve the trade dispute.

Air Freight

Air freight rates from Hong Kong, Shanghai, Shenzhen and Guangzhou have all increased due to rising demand for air cargo space. This increase in demand reflects a return to normal levels of volume now that production has fully resumed in China since the Lunar New Year and that finished goods are now ready to be shipped out.

Hong Kong and Shenzhen

Rates in Hong Kong and Shenzhen has increased by 10% effective this week as compared to levels in mid-March.

Shanghai and Guangzhou

Rates in both Shanghai and Guangzhou has shown a larger increase of 10%-15% where airlines have been revising rates based on demand.

Taiwan

Air freight rates for cargo leaving Taiwan remains unchanged from late February levels on stagnant demand as compared to those in China and Hong Kong.