Threat of higher tariffs continues to push up transpacific rates.
Both ocean and air freight rates continue to rise.
The latest Freightos Baltic Index (FBX) pegged the average spot rate globally of moving a 40-foot dry container at the beginning of this week at $1,657, up 3 percent from the prior week and up 33 percent from the same time period last year.
Freightos says the prices it uses in the index are “rolling, short-term freight all kinds, spot tariffs and related surcharges between carriers, freight forwarders and high-volume shippers.”
The increase over last year is much steeper on the routes from China to the U.S. The FBX from China to the U.S. West Coast is $2,557, up 1 percent from the prior week, but 69 percent higher from the same 2017 week; to the U.S. East Coast, the FBX is $3,496, up 6 percent from the prior week and up 65 percent from the same 2017 week.
In contrast, rates from China to North Europe have been much weaker at $1,525, up 6 percent from the prior week and up 3 percent from one year ago.
Drewry’s World Container Index (WCI), a composite of spot container freight rates on eight major routes to/from the U.S., Europe and Asia, shows a similar uptick. The WCI published Thursday was $1,798.71 per 40-foot container. That is up 6.2 percent from last week and up 30 percent from the same period last year. Drewry noted, however, that year to date the average composite rate, at $1,496 per 40-foot container, is still $23 lower than the five-year average.
Freightos says, “Some ocean carriers pulled their November 1 GRI, but, with sailings heavily booked, further rounds of GRIs are expected on November 15 and December 1. Depending on the outcome of the U.S. and Chinese presidents’ upcoming negotiations, there may be more trade tariffs to come and therefore no letup in high transpacific pricing”.
“There’s a reason why China-West Coast prices have been at 18-month highs for 13 straight weeks,” said Zvi Schreiber, chief executive officer of Freightos. “It’s not just that it’s peak season — they have been largely spurred by advance shipments before each successive tranche of China trade tariffs takes effect. Right now, people are trying to beat the January 1 tariff increase” when the 10 percent U.S. tariffs on $200 million of Chinese imports are scheduled to increase to 25 percent.
“If President Trump holds good on his threat to slap a tariff on the remaining $257 billion worth of imports should his meetings with President Xi at G-20 fail to break the deadlock, then expect transpacific prices to remain strong in January ahead of yet another tariff hike,” said Schreiber.
Freightos also says air freight rates have risen. Per kilogram, it said, “at $2.80, China-Europe average general rates are 33 percent up on this time last month. The biggest jump was Shanghai-Barcelona at 45 percent. At $4.42, China-U.S. average general rates are 12 percent up on this time last month. At $1.50, Europe-U.S. average general rates are unchanged from this time last month, with some airlines still publishing promotional fares.”
Looking ahead to next year, Simon Heaney, senior manager of container research at Drewry, noted in a recent webinar that while spot rates have fluctuated throughout 2018, “average contract rates have remained stable, rising modestly through the period.”
“The spot market has a significant pull on contracting rates,” he said, and how sustained the gains on contract rates will be “depend quite a lot on the state of the spot market over the next few months.”
Negotiations on many Asia-Europe contracts for the next year will get under way in the fourth quarter. In the Asia-U.S. trades, they often start later, covering a contract year that begins on May 1.
All eyes are on the Asia-Europe market, said Heaney. “Carriers clearly are going to be looking to boost rates and to recover the higher bunker costs they have had to endure.”
Heaney said average pricing globally is expected to increase by around 5 percent next year “on the back of slightly easing supply pressures next year and stronger contracting prices, supported by the recent bounce in spot rates.”
In 2020, he said the new IMO requirement that carriers use low-sulfur fuel or be equipped with scrubbers will, “in our opinion, inevitably … lead to a sharp increase in freight rates.”
Drewry has forecast the container carrier industry will have a collective loss of about $400,000 this year as “the second half of the year is not going to be strong enough to completely claw back those loses” carriers experienced in the first half of 2018, said Heaney.
But Drewry believes 2019 may “mark something of a turning point in carrier fortunes,” he said. “It’s not going to be a stellar year, in our opinion, but certainly an improvement on what we’ve seen in 2018.”