Transpacific ocean freight market ‘exploding’ as US demand rebounds

Ocean freight prices on the transpacific trade have been “exploding” in recent weeks, according to a key global ocean freight forwarding executive, as US importers restock at a time of tight container shipping capacity.

In an interview last week with Lloyd’s Loading List, DHL Global Forwarding’s head of global ocean freight Dominique von Orelli said: “We see a huge peak, with customers shipping much more than forecasted or was anticipated. It's clear that the US is restocking and filling up stores and so the rates are exploding. There is no space; the transpacific is under pressure – and much more severe than Asia-Europe.”

As on the Asia-Europe lane, he stressed that DHL has its own transpacific capacity reserved with lines, but problems are arising when shippers want more space than original requested.

“We have secured sufficient capacity for our customers and we won't have a problem with what is forecasted,” he explained. “But once customers want to ship much more than originally been forecasted, the capacity situation will become challenging.”

He said whether the current surge in shipment levels into the US would develop into a more traditional transpacific peak season was difficult to predict.

Peak season difficult to predict

“This, now, is about the aftermath of COVID,” he said. “The US retailers, many did not ship in April or May, including many large retailers, so June is big, month on month. How long is it going to last before we see a drop again? We don’t know, as it also very much depends on whether there will be a second wave.”

The uncertainty explains the decision of lines to bring capacity back cautiously. “We see an extra loader or two coming in, but they're not re-establishing regular loops because they don’t see it as sustainable,” said von Orelli.

He forecasts that the transpacific ocean market will probably contract overall by around 15% this year irrespective of the recent bounce-back in demand

“The transpac is the trade where we are developing the most in the last two years, so we will certainly do better than the market,” he added.

Whether liner strategy in 2020 becomes the ‘new normal’ with carriers continuing to maintain strict discipline remains to be seen, although von Orelli believes they will.

“They are certainly getting better and better at this,” he said. “We saw it during the lockdown and we see it now; they are really agile when it comes to capacity and the alliances seem to have a pretty good understanding on how and what to do.

“So, yes, I truly believe that this is something we have to live with.”

Asked if this this could mean a sustained period of relatively buoyant rates, von Orelli was unsure.

“Most probably rates will remain strong throughout Q3 and Q4,” he said. “However, if one carrier decides to open the flood gates to increase market share, we will see rates weaken. But currently we don’t see any indication for this.”

As for 2021, he notes: “We might see an increase in ocean volumes, but we won’t most probably be back to 2019 levels next year,” he said.

As reported today by Lloyd’s Loading List, container lines are bringing capacity back far more quickly on the transpacific trade than on the Europe-Asia lane as coronavirus lockdowns are eased, according to the latest industry analysis by Alphaliner.

As a result, while vessel capacity on the Asia-Europe trade is still far below pre-coronavirus levels, capacity available to shippers on the Asia to North America lane is now edging close to 2019 levels.

As reported earlier this week by Lloyd’s Loading List, spot freight rates on the Asia-Europe trade climbed again last week, with rates on the Shanghai to Rotterdam and Shanghai to Genoa trades gaining 11% and 9%, respectively, week-on-week, according to the World Container Index assessed by Drewry. Shanghai to Rotterdam spot rates are now 26% higher than a year ago while and Shanghai to Genoa spot rates are up 25%, year on year.

On the transpacific trade, after several weeks of gains, Shanghai to Los Angeles spot rates fell 9% last week to $2,467 per feu, although they remain 68% higher than a year ago. And after strong gains last week, Shanghai to New York average spot rates were flat last week at $3,196/feu, 30% higher than a year ago.

Drewry noted that its composite World Container Index, of eight major East-West trades combined, reached a five-year high of $1,885 per 40ft container, up 1% from the previous week and 39.3% up compared with same period of 2019, “as ongoing capacity reductions propelled spot rates higher and higher”. The average composite index of the WCI, assessed by Drewry for year-to-date, is $1,628 per 40ft container, which is $236 higher than the five-year average of $1,392 per 40ft container.

As reported earlier this week by Lloyd’s Loading List, von Orelli said the careful management of vessel capacity by carriers was behind the surprisingly stable and healthy freight rates this summer given that overall shipping volumes on the major East-West trades lanes are significantly lower than a year ago.

“[Carriers] are hesitating to bring capacity back,” he said. “That's why the rates are surprisingly strong on the Asia-Europe trade lane and through the roof on the transpacific trade lane.”

Demand building up 

On both trades, demand is now building up – Asia-Europe rather slowly and transpacific quite rapidly – putting pressure on capacity and threatening to further push up freight rates. Increasing demand for space into Europe from Asia as lockdowns are eased has resulted in capacity now being “very tight”, according to von Orelli.

“I think northern Europe will be picking up stronger in the second half,” he said. “The south will be most probably follow. The battle has already started to get the cargo on board. Shippers have to plan in the long term more than ever.”