On June 7, a headline in a trade publication indicated freight carriers were poised to profit from higher rates. On June 8th, that same trade publication had a new headline indicating that new capacity entering the market would keep pressure on West Coast rates. Those contrasting remarks highlight the uncertainty when it comes to predicting freight rate stability in the Asia to US market.
Based on the recent movement of the West Coast spot rate, the June 8th headline more closely reflects what is currently taking place in the market. Spot rates to the ports of Los Angeles and Long Beach have been heading downward from their peak in February 2017. If the rates continue on this downward path, they will reach levels that ultimately led to the demise of Hanjin Shipping.
The ocean freight carriers have been quick to silence any talk in the industry about them repeating the pricing mistakes of 2016. They have indicated that container forecasting for the upcoming peak season is very strong. They are very optimistic that the West Coast spot rate will rebound in July and hold through October. Several key carriers have already announced rate increases and peak season surcharges totaling $1700 per forty-foot container to be implemented in July.
A $1700 increase in freight charges has zero chance of holding in the market. The current market conditions, where supply is slightly greater than demand, will not allow that to happen. It would take tremendous discipline and unity by the carriers to implement such a large increase. Anyone that closely follows the containership industry recognizes the one thing the carriers sorely lack is discipline. The spot rate from Asia to US West Coast ports will increase heading into the peak shipping period. The actual amount depends on many factors but it will not be close to the announced amount of $1700.
IHSA closely monitors the spot rate market but chooses not to offer spot rates. The participating members of IHSA have benefited over the years by utilizing contract rates versus spot rates. The instability of the spot rate market can make it very difficult for shippers to secure space during peak shipping periods. That is, unless shippers are willing to pay premium prices for the space. IHSA members are not subject to these huge swings in pricing. Space is provided based on the original contracted pricing levels. Participating members prefer the stability that IHSA contract rates offer versus the instability and uncertainty the spot rate market provides.
The International Housewares Shippers Association (IHSA) is a not-for-profit association formed to benefit companies belonging to the International Housewares Association (IHA). Through the combined leverage of members, IHSA negotiates freight contracts and partners with other logistics providers to lower supply chain costs.
IHSA’s main function is to negotiate the lowest possible transportation rates and provide the highest quality service for all participating members. Additionally, IHSA members receive valuable market intelligence and advice through regular newsletters and briefings.
IHA member companies looking to reduce their ocean freight costs or have questions about an ocean freight issue are encouraged to contact IHSA to learn about the program. Contact IHSA at +1-513-489-4743 and learn more on our website.