Market Rates and Trend Forecast

May 20th, 2019

Ocean Freight

Ocean freight rates for the latter half of May decreased by approximately US$250/FEU to the USWC and US$200/FEU to the USEC compared to the first half of the month. This rate decrease can be largely attributed to the escalating impacts of the U.S./China trade dispute on the global economy.

U.S./China Trade Dispute – Sharp Escalation

The sudden escalation of trade tensions between the U.S. and China last week casts a dark cloud on the trans-Pacific containerized trade after months of positive commentary from both governments expressing progress towards a formal trade deal. According to The Wall Street Journal, container volume growth could be as little as 2% this year while the International Monetary Fund revised their forecast for global trade growth to 3.4%, down from 4% in January.

Alphaliner predicts that the eastbound trans-Pacific volume will decrease by 8% in 2019 if President Trump acts on his latest threat of imposing tariffs on an additional US$300 billion worth of Chinese imports at a 25% rate. Despite positive momentum in the first quarter of the year, the downside risks are mounting with large short-term uncertainties. However, the focus on the next opportunity may come when Presidents Trump and Xi Jinping will meet at the Group of 20 meeting in Japan next month.

Blank Sailings – Vessel Heavy Fuel Flushing

Elaborating on the topic of scrubber retrofitting on vessels that we previously mentioned, the vast majority of vessels will not be equipped with scrubbers and will transition to the use of low-sulfur fuel. These vessels will be dry-docked so that the heavy fuel can be flushed out to prevent mechanical breakdowns. The process takes approximately one week and implies that most vessels will miss at least one scheduled departure.

Each carrier is expected to handle the transition differently given their respective fleet portfolios and those of its alliance partners but there could be deterioration in schedule reliability as well as a reduction in carrier capacity as vessels are taken out for scrubber retrofitting and dry-docking. Laconic foresees that the tightening of capacity may lead to higher spot rates as we approach the end of the year.

Oil Prices

Oil began this week strongly after Saudi Arabia and other OPEC+ members signaled their intentions to constrain supplies for the remainder of the year as tensions between the U.S. and Iran continues to deepen. Oil has rallied approximately 40% this year since supply cuts are currently outweighing the risks from slowing demand caused by global trade tensions. The view is that OPEC wants to limit supply to maintain current prices.

Air Freight

Air freight rates from Hong Kong and China remains largely unchanged whereas rates in Taiwan are set to increase 10% - 15%. There is the possibility of freight rate increases in the upcoming weeks leading up to the G-20 summit in June. As well, President Trump’s threatened List 4 includes many items that are typically transported by air (example: laptops, cellphones) and any attempt at frontloading cargoes may push rates higher.

Hong Kong and Shanghai

Rates in Hong Kong and Shanghai remains unchanged from the levels in early May and will remain until the end of the month. There were some reports that air freight rates spiked in the week after President Trump’s tariff announcement as the announcement left no time for ocean freight to beat the deadline, which sent air cargo freight rates higher.

Shenzhen and Guangzhou

Air freight rates in Shenzhen and Guangzhou increased by 5% where airlines have been revising rates based on demand.

Taiwan

We have received airline notices that air freight rates from Taiwan are scheduled to increase by 10% - 15% with effect on May 21, 2019.