ASIA-USA Shipping Update
Ocean carriers operating in the Asia-US trade lane are making a last-minute push to implement General Rate Increases (GRIs) before the Lunar New Year, a strategic move to leverage the seasonal tightness in an already overheated market. The situation is further complicated by ongoing disruptions in the Red Sea, contributing to the complexity of global shipping dynamics.
Spot Rate Surge:
Sharp surge in spot rates reminiscent of patterns observed during the pandemic. However, the current market is considered inflated, and the ocean freight rates may not accurately reflect the actual demand due to the supply squeeze such as blank sailing.
Diversions of major container liner services from the Suez Canal to a round-Africa routing lead to operational ripples.
Operational challenges compounded by the impact of Chinese New Year.
Examination of the speed of spot rate increases after carriers bypassed Suez in mid-December.
Lessons learned during the pandemic are being applied to swiftly leverage changes in supply/demand balance into spot rate adjustments.
Silver lining: Stabilization in the security situation allows carriers to settle into new schedules, introducing an element of stability and predictability, mitigating initial upheaval.
General Rate Increases (GRIs) and Capacity Restrictions:
Ocean carriers are seizing the opportunity to implement GRIs before the Lunar New Year to capitalize on seasonal tightness in the market.
Proposed rate increases are set at around $1,000 per FEU and are set to take effect in February. Nevertheless, there was a decline observed in the prevailing rate during the initial week of February.
The trade lane is described as overheated especially for east coast sector due to the red sea crisis.
The pre-rush of cargo ahead of Lunar New Year, coupled with a major blank sailing program, contributes to rate increases.
Schedule Reliability Post-Pandemic:
Despite expectations of schedule reliability returning to pre-pandemic levels in 2023, the reality has been different that most shippers convert their shipping planning to project mode with batch-type production.
The slowdown in production not only affects transport buyers but also poses challenges for shipping lines.
Shipping lines risk encountering empty space on vessels, a scenario considered unfavorable. In response, they may resort to blank sailings, canceling routes or skipping ports to ensure vessels are fully loaded.
December's -5.0 PP decrease indicates the impact of the Red Sea crisis, but subsequent months may see less impact as adjusted networks are established.
Global schedule reliability and average delay metrics have improved over pandemic years but remain below pre-pandemic levels.
Port Dynamics at Los Angeles and Long Beach:
During the pre-Lunar New Year period, the ports of Los Angeles and Long Beach are experiencing fewer vessel arrivals compared to the same period in pre-COVID 2018-19.
Notably, there are no container ships at anchor, a significant improvement from the peak of 109 vessels at anchor in January 2022.
Sourcing Trends and China's Role:
The share of US containerized imports coming from China and others aligns with three major sourcing trends: “China Plus One”, friendshoring gains, and increased reliance on Vietnam and India.
US retailers are reducing their exposure to China, following a trend of diversifying sourcing strategies to mitigate risks associated with depending on a single origin for key goods.
Impact on Indian Shippers and Freight Forwarders:
Indian shippers and freight forwarders are facing increasing vessel space constraints for loads to North America.
Confirmed bookings are experiencing challenges, with vessel connections being missed due to limited space availability.
Continue to regard India as a significant potential market, particularly with carriers’ strategic service expansion such as ONE launching a new service to the East Coast in May, aptly named "WIN."
In summary, the global shipping industry is navigating a complex landscape marked by rate increases, market tightness, and disruptions. Sourcing diversification and regional challenges are influencing trade dynamics, with the Chinese New Year and ongoing geopolitical factors shaping the near-term future of Asia-US trade.
We are committed to ensuring the stability of our customers’ supply chains, and we are working closely with our logistics teams and taking the necessary steps to minimize the impact on our customers.
We understand the potential impact this will have on your supply chain, but please know that all decisions are being carefully considered by our teams and only implemented to ensure the safety of the entire supply chain.
We appreciate your patience and understanding as we work through this difficult situation. If you have any questions or wish to discuss options, please don’t hesitate to reach out to your local South East World Wide (Chicago) Ltd Sales Representative.