Port Report: Outlook for trans-Pacific shipping rates is meh as imports expected to slow

As the 2018 import overhang lingers for a while, box ship rates may also suffer.

Spot rates for ocean freight into the U.S will face a “challenging” 2019 for growth, according to Maritime Strategies International, as the box ship industry will “be characterized by moderate growth in supply and demand.”
MSI’s outlook comes amid a similar tamping down of expectations around U.S. container imports, which will see a marked slowdown from last year.

China’s manufacturing activity is now picking up again after the end of the country’s Lunar New Year. But with the U.S. inventories-to-sales ratio at the highest level since August 2017, U.S. manufacturers and retailers clearly have little need to immediately restock their warehouses.

As such, spot container ships are in a damper. The Freightos Baltic Index for the trans-Pacific roundtrip (SONAR: FBX.CNAW, NAWC) sits at $1,864 per forty-foot equivalent unit (FEU) for the roundtrip voyage.

MSI’s last monthly outlook on container shipping does not see much improvement in that trade with the round-trip trans-Pacific spot rate running at $1,907 per FEU through May and rising to $1,978 per FEU by August.

The August figure is well below $2,472 per FEU rate achieved in 2018 when the major container alliances cut capacity in the trans-Pacific market due to concerns about too much supply. MSI said there have been “signs of successful capacity management by liners” in the trans-Pacific through reducing vessel capacity.

Container tracking firm PR News Service said the Ocean Alliance members – CMA-CGM, Cosco Shipping and Evergreen are expected to reduce capacity in the trans-Pacific by nearly a quarter from the beginning of the year through switching ships of 11,000 to 14,000 twenty-foot equivalent (TEU) capacity down to 8,500 TEU capacity.

But by the end of the third quarter, MSI expects container ship earnings “will be substantially lower on an annual basis.”

The forecast comes amid a tempered outlook on container imports. At a panel last week hosted by the Port of Long Beach, Melissa Peralta, an economist for railcar pooling company TTX, said North American imports could see 1.8 percent growth in 2019, a comedown from the 6.1 percent increase seen last year.

Last year was marked by the one-off event of pre-tariff front-loading by shippers, Peralta  said. With the economy set for slower growth and the end of sugar high from tax cuts, Peralta said “imports may struggle to keep pace with overall economic growth due to an overhang of freight delivered in late 2018.”

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