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Spot rates in the eastbound trans-Pacific continued their seasonal downward trend last week with no major developments occurring to move the market.

Last week the spot rate for shipping a 40-foot-equivalent unit (FEU) declined 6 percent from prior week to the East and West coasts. The East Coast rate was $2,721 per FEU compared with $2,887 per FEU the week prior, and the West Coast rate was $1,338 per FEU compared with $1,424, according to the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index.

Spot rates each week have declined in single-digit increments since peaking in mid-January at $3,647 per FEU to the East Coast and $2,211 to the West Coast. Cargo volumes normally drop off during this time of year as many factories close for the annual Chinese New Year celebrations. Volumes should begin to ramp up slowly in the coming weeks and accelerate as they approach the peak-shipping season in late summer and fall.

Vessel utilization has a discernible impact on spot rates. During the slack periods of the year, excess capacity can build quickly, which sends spot rates lower. February numbers released Friday by the Transpacific Stabilization Agreement, a discussion group representing most of the major carriers in the trade, show that in the first week of February utilization rates on the major routes to the East and West coasts were 90 to 96 percent. However, during the post-Chinese New Year lull in mid- to late February, utilization rates to the West Coast were 76 to 86 percent, and utilization rates on all-water services to the East Coast through the Panama and Suez canals were mostly 82 to 89 percent.

Another development that should be driving rates higher was the bankruptcy filing on Aug. 31, 2016, by Hanjin Shipping. That incident was a sobering reminder to beneficial cargo owners (BCOs) as well as carriers that spot rates and contract rates had dropped so low that other bankruptcies are possible, which would restrict capacity in the trade and force rates up rapidly. BCOs as well as carriers are operating under the assumption that unless rates are at least within break-even levels of about $1,550 to $1,600 per FEU to the West Coast, other carriers could perish.

If annual service contract rates come in below the break-even rate, carriers will attempt to make up the difference during periods of rising demand, such as in mid-summer for the back-to-school merchandise and late summer though the fall months when holiday merchandise is imported. When vessel space tightens in such periods, carriers usually announce general rate increases. In recent years, the GRIs have lasted a week or two before deteriorating rapidly. If a strong holiday shipping season is predicted, carriers will attempt to implement peak-season surcharges that run at least through November.

 

Source: JOC

 

 

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