[Freightos Weekly Update] After pause, labor disruptions resume and rates climb

Key insights:

1. Labor disruptions that, except in Seattle, had stopped by last Thursday, resumed over the weekend and into this week at LA/Long Beach, prompting the White House to send Labor Secretary Su to California to try and bring the sides to a resolution. The federal government ultimately can invoke a law forcing labor to resume.

2. Transpacific ocean rates climbed sharply last week with Asia - US West Coast prices increasing $250/FEU or 19%, and rates to the East Coast climbing 12%. The increase is likely driven more by a moderate increase in demand and capacity management by carriers, as well as by Panama Canal low-water surcharges and restrictions, than by labor disruptions just yet.

3. The National Retail Federation estimates monthly US imports increased slightly in May and will continue to do so through August – at above 2019 levels – though other industry sources pointing to continued struggles with inventory levels and uncertainty around consumer demand are less optimistic.

4. Asia - Europe volume data suggest a slight import rebound may have started in April despite signs of recession, while Asia - Mediterranean volumes continued to be strong, reflected in ocean rates that remain nearly 30% higher than in 2019.

Ocean rates:

• Asia-US West Coast prices (FBX01 Weekly) increased 19% to $1,569/FEU. This rate is 85% lower than the same time last year.

• Asia-US East Coast prices (FBX03 Weekly) climbed 12% to $2,626,/FEU, and are 81% lower than rates for this week last year.

• Asia-N. Europe prices (FBX11 Weekly) fell 9% to $1,201/FEU, and are 89% lower than rates for this week last year.

Analysis

With the exception of Seattle, which has been effectively shut down since mid-last week, significant labor actions that disrupted operations across West Coast ports for much of last week came to an end by Thursday, with operations returning to normal and backlogs getting cleared as negotiations resumed.

But the PMA claims that sporadic actions or absences by ILWU members resumed over the weekend and continued through Monday slowing operations at LA/Long Beach once again, though Oakland was still operating normally.

So far, MarineTraffic data shows just a few ships waiting in Seattle, and no major buildup off of LA, though vessels delayed by the slow downs may just be waiting further offshore due to COVID-era guidelines aimed at reducing coastal pollution.

In response to the deterioration of negotiations the White House dispatched Labor Secretary Su to San Francisco on Monday to try and bring the sides closer together over wage increases, which remains the key issue in the dispute. The administration ultimately also has the ability to invoke a federal law that would force workers back to normal operations.

Transpacific ocean rates climbed sharply last week on June GRIs, with Asia - US West Coast prices increasing $250/FEU or 19%, and rates to the East Coast climbing 12%. The level of success of this rate increase – daily rates so far this week are about level – would likely be due to a mix of capacity management, some slow down driven by the labor actions, Panama canal water levels which are adding surcharges and effectively reducing capacity to the East Coast, as well as a moderate increase in import volumes.

The latest National Retail Federation US ocean import report estimates volumes increased 3% in May compared to April and projects single digit monthly increases through August followed by a slight decrease for September and October – with all months slightly above 2019 levels, suggesting a return to moderate growth and seasonality.

But with underlying consumer demand uncertain too, not everyone is as optimistic. Other analyses show that destocking among major retailers like Big Lots and Nike continues, pushing off the likelihood of a rebound, with others even predicting a sharp drop off in volumes starting in August.

In Europe, despite indications of recession, there was a slight rebound in ocean import volumes in April attributed by some to a modest start to restocking. Asia - Europe ocean rates remained subdued last week at 11% below 2019 levels, though daily rates for this week may show signs of about a 10% rebound to start the month.

Asia - Mediterranean volumes continue to be strong, with significant year on year increases of more than 20% in April which likely accounts for stronger rate performance on this lane compared to the other major trades. Asia - Mediterranean prices of $2,364/FEU last week remain 28% higher than in 2019, making the benchmark for this lane the only one still significantly elevated relative to pre-pandemic levels.