Market Rates and Trend Forecast

March 18th, 2019

Ocean Freight

Ocean freight rates for the second half of March has declined approximately US$100/FEU to both the USWC and USEC. Declining imports from Asia to the U.S., fresh blank sailings and signs of improvement at the port of Los Angeles-Long Beach are indications of market softness and we continue to forecast that rates will fall further until the end of the month.

Trans-Pacific Blank Sailings

Spot rates dropped for a seventh straight week in order to maintain equilibrium between demand and capacity as U.S. imports from Asia dropped nearly 1% in January and February to 2.73 million TEU. This is also a signal hinting towards a weak first quarter although it has been widely anticipated due to the frontloading of merchandise in late 2018 to avoid U.S. imposed tariffs. This has prompted the Ocean Alliance to announce 10 cancelled trans-Pacific sailings and Ocean Network Express with 3 for March and April. This is in additional to the 35 blank sailings through February and early March.

West Coast Port Conditions

The Los Angeles-Long Beach port complex handled approximately 38% of all U.S. containerized imports in 2018 that has been struggling with rail, truck and terminal congestion since late last year has shown signs of improvement. Much of the congestion can be attributed to Lunar New Year sailings, trade dispute front loading and a shortage of chassis and truckers.

A temporary truce in the U.S./China trade dispute and a list of blank sailings reduces capacity and demand. As a result, this will lower the number of ships arriving at the port which will further improve conditions. With dwell times falling back to below two days, perhaps this is the light towards the end of the current round of congestion problems.

U.S./China Trade Dispute – Update

There hasn’t been much change in the trade dispute between the U.S. and China since earlier this month as both countries continue to work towards a resolution. However, it is worth noting that a meeting between the two presidents to end the trade war won’t happen this month and is more likely to take place in April at the earliest. Continuation of communication between the two administrations are positive signs for the shipping industry since escalations can lead to a sudden surge in demand and volatility in ocean freight spot rates.

World Bunker Prices

With bunker prices remaining near 2019 highs, Saudi Arabia is urging fellow OPEC+ members to continue with supply cuts. A curb in supply has led to a 25% recovery in Brent prices this year and we may continue to see a rise as output continues to fall in Venezuela, sanctions on Iranian oil remain and uncertainties on the implementation of the January 1st, 2020 low sulfur mandate. All of these reasons could lead to a possible rise in ocean carriers’ fuel/bunker recovery charges.

Air Freight

Except for Taiwan, air cargo departing from Hong Kong, Shanghai, Shenzhen and Guangzhou will see a 5-8% rise in air freight rates largely due to an uptick in demand and because of China’s Civil Aviation Administration’s decision to halt all Boeing 737 Max airplanes from being in service.

Hong Kong

Air freight rates in Hong Kong will rise by 8% effective March 20th until March 31st as anticipated during our last update. This increase is reflective of an increase in post Lunar New Year demand.

Shanghai, Shenzhen, Guangzhou

Rates have increased 5% this week and will rise another 5% next week due to China’s Civil Aviation Administration’s directive to ground all Boeing 737 Max airplanes following Ethiopian Airlines’ Flight 302 accident. Chinese airlines account for approximately 20% of the 737 Max worldwide with 96 units. The inability to operate these airplanes until further notice has lowered capacity for both passengers and cargoes leaving China.

Taiwan

Air freight rates for cargo leaving Taiwan remains unchanged from late February levels.