Uncertain cargo volumes, but lines are pushing rates higher

Only uncertainty is certain at this time. Economic theory while not completely useless, may have to be remodelled at the very least. Not that the lines need this, their version of supply and demand is working fine, for them.

It is beginning to look like the European Commission’s decision to renew the Maritime Alliance’s block exemption in April has worked very well for the carriers. It received a distinctly cold reception from the carriers’ customers and their costs will be on the increase.

It is likely that consumers in both Europe and the US have been paying too little for goods for too long and the price correction is coming. Certainly one senior financier told Container News recently that shippers had “enjoyed very low rates for a long time, so they cannot complain now”.

That view may well be true, and in these carbon conscious times there may be a need for shippers and consumers to pay more for environmental reasons. However, the profits from these higher costs are not helping the broader community fight climate change, but are going directly to the lines’ bottom line. And why not? Others are making money.

June statistics in the United States (US) are showing retail figures have increased 7.5%, on May figures, but just 1.1% higher than June 2019. Although the figures, according to some, remain unreliable.

“US imports are performing like a yo-yo, up one month and down the next with no apparent cause that can realistically point to either a crashing or booming economy,” Hackett Associates founder Ben Hackett said. “We’re starting to go out to eat and buy clothing again, but how sustainable is that? The danger is that the rising number of virus infections is leading to renewed restrictions, which may cause demand to weaken again.”

Meanwhile, the National Retail Federation (NRF) in the US said the recession may be easing, but conservative retailers are not importing as much as in previous years.

NRF vice president for supply chain and customs policy Jonathan Gold commented, “the outlook for imports is slowly improving, but these are still some of the lowest numbers we’ve seen in years.”

According to the NRF’s Global Port Tracker, for US ports only, the total volumes in May were 1.53 million TEU. A full 4.8% down on April figures and 17.2% down year-on-year.

Forecasting is a little difficult but the NRF said June was estimated at 1.69 million TEU, down 5.8% year-on-year. July is forecast at the same 1.69 million TEU, down 14.1% from last year; August at 1.69 million TEU again, down 13.3%; September at 1.64 million TEU, down 12.3%; October at 1.7 million TEU, down 9.9%, and November at 1.68 million TEU, down 0.6%.

These figures show that the current “manipulation” of the market, as consultant Jon Monroe calls it, is likely to continue for the rest of this year. Though Monroe believes the wearing of masks may mean the US is turning a corner, even though the US is posting record numbers of infections again and 12 states are rolling back on reopening their economies.

“It is hard to determine real demand under the current Covid-19 conditions. We seem to be stuck between open and closed,” said Monroe, he added, “Until we know we have real demand, meaning you and I buying product with the economy fully open, real demand may be an elusive target.”

Current demand spikes are being attributed to the heavy movement of personal protective equipment (PPE) as a result of the surge of infections in states that opened prematurely. With Non Vessel Owning Common Carriers (NVOCCs) moving PPE aimed at replenishing the government stockpiles.

“Though this is a real demand of sorts, it is not clear whether this demand is sustainable,” reasons Monroe.

Vessel operators are reacting to the uptick in demand by returning some ships to service.

However, Monroe points out that the major difficulty for shippers, apart from cost, is “booking a container and finding out after the fact that it is transhipped and taking an extra week.”

Even so, carriers are still attempting to raise rates. “Maersk is trying to orchestrate a 19 July GRI [general rate increase] that will bring the West Coast rate closer to US$3,000. It seems other carriers may not follow in which case, it will not stick,” claims Monroe.

A similar situation exists on the other major trade between Europe and Asia, with some carriers looking to push rates even higher.

Ethan Buchman, chief marketing officer at Freightos said, “After hitting a two year FBX high last week, ocean rates from China to the US West Coast declined slightly, but remain 68% higher than the end of May and 72% higher than last year.”

He went on to say, “The June demand surge had carriers cancel very few sailings in July compared to the previous month, with The Alliance even restoring some Asia to Europe sailings and two end of the month China-Pacific Northwest ships this week.”

Even so, some lines are pushing ahead with rate increases in services to Europe, and other destinations en route.

German carrier Hapag-Lloyd has announced the following ocean tariff rates for all cargoes in 20’ and 40’ (including high cube containers) on the westbound trade from East Asia to North Europe and Mediterranean. Valid for sailings commencing on 1 August onwards and until further notice, the company’s rates from East Asia (including Japan) will be as follows: