[FBX Weekly] Transpac rates drop as peak season comes to an end

Key insights:

1. The end of peak season pressure drove the largest transpac rate drop of the last two years. Peak season demand led to a 70% spike in Asia-US West Coast rates at the end of July, and its reduction caused a 26% drop this week to $13,924/FEU.
2. But the capacity crunch is far from over; these rates are still extremely elevated, nearly 30% higher than their level just before the July spike, 261% higher than a year ago and 9X more than in November 2019.
3. But continued congestion, elevated demand for goods and low inventories are leading to projections of November and December US import volumes 30% higher than in 2019, meaning rates should stay well-above the norm as well. 

Asia-US rates:

• Asia-US West Coast prices (FBX01 Daily) fell 26% to $13,924/FEU. This rate is 261% higher than the same time last year.
• Asia-US East Coast prices (FBX03 Daily) decreased 20% to $15,865/FEU, and are 239% higher than rates for this week last year.

Analysis

With peak season urgency solidly behind us, this week saw a significant fall off in transpacific ocean rates. 

The pandemic-driven increase in spending on goods has fuelled growth in ocean volumes and nearly uninterruptedly pushed container rates up since June 2020.  But the additional demand driven by this year’s peak season supercharged pressure on rates this summer. This led to a 70% price spike over the last two weeks in July – the sharpest climb of the past 18 months.

So now, the easing of that peak season demand – likely aided by the impact of energy-driven supply constraints to Chinese manufacturing – seems to have led to the largest price drop of the past two years. 

Asia-North America West Coast rates fell 26% this week, though they remain extremely high at $13,924/FEU. Rates are nearly 30% higher than their level just before the July spike, 261% higher than a year ago and 9X more than in November 2019.  For the first time since June, there are reports that many transpacific bookings can be made without paying the hefty premiums that were a major factor in the July spike, suggesting drops in premiums are contributors to the current decrease as well.   

Other trends, like the recent dip in transpac vessel speeds on the return trip to Asia and falling container ship charter rates, could also reflect a post-peak decrease in demand. 

Importers will welcome the lower rates, but prices are likely to be kept well above the norm by port congestion and low inventories and still-elevated consumer demand. 

Though there are indications that new measures are improving yard congestion at LA/Long Beach  and new federal spending could help some ports in the near term, ports remain overwhelmed. And though the latest NRF analysis of US retail ocean import volumes reflects the moderate short-term easing, it also shows that demand is expected to remain extremely elevated – 30% higher than November-December volumes in 2019 – through the end of the year.  

With the holidays nearing and ocean delays pushing some shipments to air, peak season air cargo rates have continued to climb. The Freightos Air Index (FAX) China - US West Coast lane hit $14.22/kg last week, approaching five times the norm.

New US regulations allowing vaccinated foreigners to enter the country are expected to drive an increase in badly-needed passenger jet cargo capacity to the transatlantic lane. FAX Europe-North America rates were at $5.09/kg last week, about 2.5 times the norm.  The hope for shippers is that the additional capacity will ease pressure on rates, but holiday season demand and ground handling labor shortages may not lead to that outcome.