Cargo volumes on the Trans-pacific trade route continue to surge following the Chinese Golden Week holiday, resembling the peak season rather than the traditional start of the winter slack. Shippers are continuing to struggle with increased rates, shortages in capacity and equipment, frequent rollovers, longer book-to-sail cycles, and eroding schedule integrity.
With the number of coronavirus cases rising across the U.S. and the number of jobless claims well above the consensus forecast, no one predicted a spending surge. According to statistics released Friday by the Commerce Department, retail sales rose 1.9% in September – more than double the consensus forecast. With inventory levels across all sectors at historically low levels, there is rising concern that companies will not be able to import enough goods to meet demand. A recent report released by investment bank Jefferies warned of “empty shelves and raided storerooms,” noting that “it’s not just local grocers running out of essential supplies.” The implication is that retailers still need to import a lot more goods, primarily from China, which brings concerns for U.S. shippers in terms of transport availability and timing as well as spot and contract pricing. As such, demand is anticipated to remain very strong through at least mid-November, with some shippers forecasting strong demand through mid-January 2021.
Capacity Constraints
Space will remain in short supply as carriers clear the backlog accumulated during Golden Week. Several carriers have indicated that they expect strong volumes through the remainder of year, and shippers should expect capacity constraints to continue.
Longer Book to Sail Cycles
Carrier booking releases have been stretched to 3 to 4 weeks due to strong demand, versus the normal 2-week cycle from booking release to vessel departure, requiring shippers at origin to book further in advance.
Rollovers
Despite the reinstatement of blanked sailings and deployment of additional loaders, rollover ratios remain high, following unprecedented numbers in August and September, and it appears that carriers are unlikely to inject more spot-capacity through the end of the year.
Rollover Ratio by Leading Container Lines
|
Line |
August 2020 | September 2020 | Change |
| MSC |
18.2 % |
16.2 % |
-2.0 % |
| Maersk |
37.5 % |
32.9 % |
-4.6 % |
| Hapag-Lloyd |
38.4 % |
34.2 % |
-4.2 % |
| CAM CGM |
45.8 % |
40.6 % |
-5.2 % |
| COSCO |
30.1 % |
23.7 % |
-6.4 % |
| Evergreen |
28.4 % |
25.9 % |
-2.5 % |
| ONE |
35.8 % |
38.9 % |
+3.1 % |
*Source: Ocean Insights GmbH
Equipment Shortages
Carriers are still experiencing severe equipment shortages, with the popular 40’HC especially hard to come by. Among the major carriers, ONE is suffering the most from the equipment shortage, especially with 40’, 40’HC, and 45’HC. As container suppliers in China have announced a sell-out until February 2021, the equipment shortage is expected to last until at least March. Shippers should be aware that premium service does not come with a guarantee of securing equipment.
GRI Increase
After a brief respite from spot-rate increases, trans-pacific carriers have announced a General Rate Increase (GRI), effective November 1. The GRI will affect all U.S. and Canadian destinations from all freight originating in Asia and the Indian Subcontinent. GRI will range from $900 for a 20’ to $1,000 for 40’ and $1,125 for a 40’HC.
Congestion at Main California Ports Expected to Worsen
Import volumes in Los Angeles and Long Beach have exploded in the past few months as shipments of inventory replenishment, PPE, seasonal merchandise, and eCommerce fulfillment enters through the largest U.S. gateway. The record level of imports is expected to worsen over the next few weeks as shippers rush to bring shipments in before the expiration of tariff exclusions on December 31, which many fear will not be extended. Productivity at LA and LB is expected to further diminish, chassis shortages will intensity, and drayage capacity will be stretched to the limit, possibly until factories in mainland China shutdown for the Lunar New Year holiday, which begins on February 12.
