Carriers have tried for months to increase spot rates on containers shipping from Asia to the U.S. Low consumer demand has rendered those attempts futile until now.
Carriers believe spot rates have finally hit bottom. This optimism could stem from the uptick in rates the market experienced in July. For the first time this year, spot rates have accepted a meaningful increase in the market. Spot rates for containers moving from China to U.S. West Coast ports are at the highest levels since October 2022. Spot rates moving to East Coast ports are at the highest levels since January this year. Carriers plan to drive spot rates up further by implementing another increase on Aug. 1.
So, what is driving the increase in spot rates? Imports have increased slightly as shippers ramp up their shipments heading into peak season. The slight increase in imports alone would not be enough to sustain the spot rate increases sticking in the market. The real driving force behind the staying power of the recent increases is a direct result of carriers ability to manipulate the market by adjusting available capacity.
The carriers have targeted services that move cargo to West Coast ports, specifically Los Angeles and Long Beach. A total of nine sailings were canceled in July with another seven sailings already canceled in August. These actions have caused space to tighten considerably. The carriers are actively bumping containers headed for West Coast ports to future available vessels.
Capacity entering the Asia to U.S. market is scheduled to increase by double digits in September. Experts are unanimous in saying that the peak season will be short and underwhelming. A shortened peak season coinciding with additional capacity could spell disaster for the carriers. There were hopes that container volume would rebound during Q4 2023. Those hopes have been dispelled as demand is projected to remain soft through the end of the year.
The industry will be watching closely how the carriers react over the next several months. If they deploy the additional capacity as scheduled, the gap between supply and demand is going to widen. In this scenario, it will be virtually impossible to keep spot rates from collapsing. A more likely scenario is a continuation of the capacity management strategies that manipulate the market. Suspending entire services, increasing the number of cancelled sailings and slowing down the speed of vessels are only a few strategies the carriers could employ to keep space tight and rates from collapsing.
The supply chain status for shippers that rely 100% on the spot rate market is very precarious. Carriers have shown in the past that they have no qualms about charging shippers high rates while at the same time providing an inferior product.