Author: Jeff Bergmann, International Housewares Shippers Association (IHSA)
On June 4th, I wrote a blog titled “Container Space and Equipment Challenges Persist in Asia”. Almost four months have passed and many of the same challenges persist within the Asia – United States market. No doubt, the chaos experienced by shippers during the months of May, June, and July has lessened, but many questions remain about the stability and direction of the market for the next six months.
The carriers have restored 2.4 million TEUs (Twenty foot Equivalent Units) to the global market since January. This represents a 19 percent increase over last year, bringing the total active global container fleet to 13.8 million TEUs. The additional capacity has clearly had a positive impact on space availability but it has yet to have a noticeable impact on rates. The carriers are the beneficiaries of record high rate levels at a time when the Asia-U.S. market is showing signs of slowing. While there have been minor rate adjustments in the market, carriers have remained united on keeping rates at unprecedented levels. The most recent report shows the West Coast average spot rate up 75 percent and the East Coast average spot rate up 63 percent compared to the same period in 2009.
Industry analysts predict, and we concur, that carriers could begin offering rate adjustments after China’s National Holiday in the first week of October. Carriers are anticipating a pre-holiday rush of shipments capable of producing another backlog of containers. The instant the backlog has been cleared, rate adjustments could happen quickly in the form of a mitigated peak season surcharges.
The 2009 financial collapse of the container shipping industry is very fresh in the mind of carriers. In previous years, a slowing market during peak season would have immediately triggered lower rates by every major carrier in the trade. Carriers understand all too well that a soft peak season does not bode well for the traditional slack shipping period of December through April. There have not been the deep cuts in rates shippers have grown accustomed to as a result of a soft peak season, thus creating an uncertainty in the market.
Carriers will have two choices in the coming weeks. They can choose to increase market share or focus on achieving an acceptable rate of return. If the latter, we expect minimal rate reductions other than the elimination of the peak season surcharges. We would also expect the carriers to make an effort to keep rates artificially high by removing excess capacity from the trade. If gaining market share is the top priority, the 2.4 million TEUs added back since January will remain in the market. If the market remains soft, the carriers will have no choice but to reduce rates in order to gain market share. Some of the reductions could be significant but under no circumstances do we believe there will be a repeat of the rate wars that occurred during 2008-2009. It is simply not fathomable to believe that the carriers are capable of returning to financial disarray so quickly after a record year of profitability. But then again, rate stability is an abnormality in the container freight industry.