Carriers may have 'overshot' on capacity and will need to blank more sailings - The Loadstar

Container spot freight rates on the main export routes out of China continued to fall this week, with declines seen on both the transpacific and Asia-Europe trades.

The trend of declining spot freight rates was bucked, however, on the transatlantic, where Drewry’s World Container Index (WCI) recorded a 28% week-on-week increase, to $2,663 per 40ft, on its Rotterdam-New York leg.

And the backhaul New York-Rotterdam leg price rose 4%, to $761 per 40ft, as forwarders claimed pre-US east coast strike surcharges have had an inflationary effect on pricing this month.

“In a nutshell, carriers successfully implemented a PSS in September, due to strong demand and less capacity,” one vastly experienced UK-based transatlantic forwarder told The Loadstar.

“They then introduced ‘workforce disruption surcharges’ in anticipation of the strike’s impact on the USEC and Gulf – but in the end they were waived or only applied for a very short period before being removed, as the strike ended quickly.

“Some spot rates have gone up, and we still see strong demand and capacity constraints as the congestion caused from the short strike flushes through,” the forwarder added.

Meanwhile, Xeneta data also shows a jump in rates in early September and October on the transatlantic headhaul leg, and lead analyst Peter Sand told The Loadstar “we expect sideways development for the beginning of November”, adding that reduced capacity had also played a part.

He explained: “In September and October, carriers deployed 6%-7% less capacity than in previous months, and this seems to continue in November, if the same level of blanked sailings comes about.

“Demand is steady on this trade, but was probably a little elevated in September due to front-loading, and spot rates reacted to this by going higher.

“As the strike threat is gone for now, we expect uncertainty to keep the rate above the level seen in August into the new year,” he added.

The WCI’s Shanghai-Rotterdam leg shed 7% during the week, to finish at $3,123 per 40ft, while its Shanghai-Genoa leg declined 4%, to finish at $3,296 per 40ft.

Xeneta’s XSI Far East-Europe short term rate this week stood at $3,253 per 40ft.

It was similar picture on the transpacific, where the WCI’s Shanghai-Los Angeles leg dropped 3% week on week, to $4,814 per 40ft, while the Shanghai-New York leg lost 6% week on week, to $5,266 per 40ft.

Mr Sand said the continued Asia-North America rate declines were due to growing overcapacity on the trade, as they have occurred against a background of near-record demand.

“Container imports into the US west coast in August were the second-highest on record, and beaten only by May 2021 during the peak of Covid-19.

“Volumes fell 3.4% in September from August as the market moved past its import peak, but it was still an all-time high for September, and the sixth-highest of any month on record.

However, according to Sea-Intelligence data, in the third quarter, carriers deployed 19% more capacity than in Q2, and 17% more compared with the same period last year.

“But have they overshot?” asked Mr Sand. “The spot market would suggest so, with average freight rates falling 10.4% in September and a further 6.4% in October. Looking ahead to November, there appears to be little change in the capacity offered to shippers and freight forwarders on this trade, even when allowing for some announced blank sailings.

“Unless carriers act more decisively to match offered container shipping capacity to demand, through more blank sailings or outright cancelling of peak season services, then short-term market rates are likely to erode at an even faster pace than seen in October,” he concluded.