Market Rates and Trend Forecast

September 2nd, 2019

Ocean Freight

Ocean freight rates for the first half of September increased by approximately US$350 per FEU to the USWC and USEC compared to the second half of August. Laconic believes that the rate increase is attributed to trade escalations between the U.S. and China, and the September 1st general rate increase (GRI). However, speaking to a number of peers, this rate level does not appear to be sustainable.

General Rate Increases (GRI)

Over the past few months, carrier GRI announcements effective at the beginning of the months have failed to fully materialize. This is an indication that Asian exports to the U.S. have been lackluster during this year’s peak season. Like many others in the industry, Laconic believes that this month’s increase is largely due to the recent escalation between the U.S. and China which is leading importers to get ahead of the planned tariffs later this year.

U.S./China Trade Escalations

From the U.S. side, a 15% tariff on approximately US$110 billion worth of goods that include footwear, apparel and other Chinese products will take place on September 1st. Another 15% tariff will become effective on December 15th on US$300 billion worth of toys, laptops, phones and other products. President Trump will also be increasing the levy already in effect on US$250 billion worth of goods from 25% to 30% starting on October 1st.

On the opposite side, China will be imposing tariffs on US$75 billion of U.S. goods, targeting agricultural goods, automobiles and oil. A part of these tariffs will become effective on September 1st and the remainder on December 15th.

The prospect of importers frontloading their cargoes ahead of the December tranche of tariffs appear to be providing a temporary boost to freight rates but extra loader services may put downward pressure on freight rates

Golden Week Blank Sailings

Golden Week is a one week long holiday in China where factories close and goods leaving China drop immensely. This year’s Golden Week holiday will take place between October 2nd - 7th. Carriers have announced 8 blank sailings to the U.S. west coast for October and 2 to the east coast. Void sailings typically continue on for a few more weeks after the holiday as factories re-open for manufacturing. There is the possibility for additional blank sailings as this appears to be a good opportunity for carriers to dry dock vessels in preparation of the International Maritime Organization’s 2020 Low-Sulfur mandate.

Extra Loader Service

Ocean carriers Cosco and OOCL will be having a peak season service until the first week of October servicing Southern China and Long Beach. The rotation will be Hong Kong – Yantian – Long Beach – Hong Kong with average vessel sizes of approximately 4300 TEUs. The same duo will also be operating an extra vessel to the U.S. east coast on September 9th calling Hong Kong, Yantian, New York, Savannah, Charleston and Miami.

Air Freight

In September 2016, the International Civil Aviation Organization (ICAO) announced a new policy direction that consignors that are not subject to approval by the Aviation Security Authority should be phased out by June, 2021. Under this directive, consignors are required to either be approved by the appropriate authority as a validated “Known Consignor” or become an “Unknown Consignor” where all air cargo will be subject to 100% security screening.

In response to the ICAO’s new policy direction, Hong Kong’s Civil Aviation Department has announced four phases between November and 2021 to meet the requirements.

Hong Kong’s four phases is as follows:

Although many industry experts understand that this is an ICAO requirement and Hong Kong has no choice but to comply, they expect transitional disruptions to operations, delays as well as cost increases because such X-ray machines, qualified screeners and training require heavy investments.

While the industry is still awaiting further information since the briefing was only held on August 16th, Hong Kong authorities have been looking at different air cargo screening technologies worldwide that could alleviate some of the concerns that have been raised.