Market Rates and Trend Forecast

January 15th, 2019

Ocean Freight

Ocean freight rates to the USWC rose approximately US$300/FEU to the USWC while rates to the USEC rose on average US$400/FEU. Part of the rate increase can be attributed to the new low-sulfur fuel surcharge that became effective on January 1st, 2019 as well as the upcoming Lunar New Year. To date, Laconic sees that there are many uncontrollable factors on both the micro and macro level that leaves 2019 in much uncertainty. Despite such uncertainties, we predict that ocean freight rates will drop for the remainder of the month due to China’s latest trade and export data as well as increasing pessimism in the overall global market sentiment.

Sulphur Cap (Low-Sulfur Fuel)

Carriers have been searching for methods to recoup costs of using low-sulfur fuel that will be incurred starting in January, 2020 when the International Maritime Organization introduces a 0.5% Sulphur cap on marine fuel. This transition to cleaner fuel is expected to increase the industry’s fuel bill by approximately US$13-15 billion per year. Beginning on January 1, 2019, carriers have all started levying a low-sulfur fuel surcharge.

U.S./China Trade Dispute – 90-Day Truce

Although there has been some positive commentary from U.S. President Donald Trump citing progress on trade negotiations with China, there has yet to be any formal agreements to de-escalate the trade dispute. The current impasse is a better scenario than an escalating trade spat but many have doubts that a 90 day truce is sufficient to resolve all the differences between the two nations especially in the areas of intellectual property protection and government support for state owned entities. As a result, there are still some U.S. importers that are continuing to import cargoes before the truce deadline expires in March, 2019. Chinese Vice Premier Liu He is currently scheduled to travel to the U.S. for further trade discussions near the end of the month.

China Trade and Export Data

China’s exports fell 4.4% in December compared to a year ago as the rush to beat expected U.S. tariffs showed signs of fading. Cargo on the trans-Pacific trade to the U.S. increased until November and has returned to normal levels since late December. With slowing exports and global demand, we expect either a reduction in ocean freight rates or an increase in blank sailings from ocean carriers in order to maintain demand and supply equilibrium.

Speculation

Although much is still uncertain pertaining to the U.S./China trade dispute that is starting to affect global growth, Laconic believes that ocean freight rates to the U.S. will be falling throughout the remainder of the month. Ocean carriers’ January GRIs also failed to fully materialize as rates are starting to fall just days after which is a sign that there is insufficient cargo volume to support current rates. Laconic will continue to monitor the market for any changes that will affect the trans-Pacific trade.

Air Freight

Air freight rates have declined approximately 15% from December levels and will remain until the end of the month for Hong Kong, Shenzhen, Guangzhou, Shanghai and Taiwan as cargo volume has also shown signs of softness as compared to a few months ago. Although securing spacing has eased up, there is still the possibility that there may be an uptick in cargo volume as the Lunar New Year approaches.