ComPair Data and SeaIntelligence.com have teamed up to produce a quarterly benchmark report analyzing contract rates and allocated capacity on trades to and from the United States. This report examines data from the last two quarters of 2010 and the first two quarters of 2011, measuring allocated capacity figures and rates at the end of those respective quarters.
Capacity data used in this report is the sum of the allocated capacity for the services calling on the trade route. Allocated capacity is ComPair Data’s estimate of the portion of vessel capacity on a service that is allocated to a particular trade route. Rate data provided by SeaIntelligence.com is based on contracts for all-in FAK rates, on a 40-foot-equivalent-unit (FEU) basis.
Executive summary
The link between falling rates and rising deployed liner vessel capacity was scarcely more evident than in the second quarter 2011. On key lanes from Asia to the United States, rates plummeted as capacity rose or held steady while demand grew marginally. In some cases — as from Busan to New York, or from Shanghai to Savannah — the rate drops were monumental.
Notably, rates from Asia to the U.S. West Coast fell less sharply in the second quarter than those to the key East Coast ports of Savannah and New York, despite capacity on most major lanes to Los Angeles-Long Beach and Seattle rising in the quarter.
On the bellwether lanes of Hong Kong/New York and Hong Kong/Los Angeles-Long Beach, capacity rose in the second quarter, which affected rates. At the end of June, Hong Kong/Los Angeles-Long Beach capacity was 25 percent higher than 12 months earlier while rates were 33 percent lower. Hong Kong-to-New York rates fell 18 percent in the second quarter as capacity rose 14 percent in the same period. It’s hard to deny the impact capacity has on rates on key U.S. inbound lanes.
The industry largely failed to meaningfully reduce transpacific capacity in the slack season, outside of one pulled service and a couple handfuls of skipped sailings. Retailers have chosen to burn through their inventory, operate in leaner fashion, and not restock, with U.S. consumers still subdued.
It’s also clear that spot rates are hurting contract rate levels. Carriers used spot rates in the second half of the first quarter to buoy low load factors, but those rates have stuck more stubbornly than carriers would have wanted, contributing to hundreds of millions of dollars of lost revenue in the first half.
Export rates to Asia stabilized in the second quarter, but remain way below the levels seen in fall 2010, as the introduction of headhaul capacity has hurt carriers’ efforts to effectively manage backhaul capacity.
Also, it’s becoming hard to ignore the rise of direct service capacity to the United States from the Cai Mep deep-sea complex in Vietnam, as well as from Mumbai. Capacity from those two ports clusters is surpassing that offered by carriers from the traditional transshipment hubs that have long served them — namely, Singapore and Colombo. In the case of Cai Mep, direct rates are competitive to those offered from Singapore.
The question in the third quarter is whether liner carriers will tire of seeing red ink and retrench supply in an effort to wrest back control of the supply/demand balance as the industry enters peak season. If early July is any indication, they appear willing to take some hard measures to reduce deployed capacity, with a handful of services pulled.
ComPair Data Rate Capacity Nexus Second Quarter 2011
