Container shipping rates get boost on trade shifts, tariffs and capacity cuts

 The Port of Charleston is the latest to report double-digit percent growth in container imports (Photo: South Carolina Ports)

The Port of Charleston is the latest to report double-digit percent growth in container imports (Photo: South Carolina Ports)

Ocean shipping rates into both US coasts are on the rise going into peak season demand. Along with ongoing import growth due to a strong US economy, market watchers also cite tighter regional trade shifts, tighter vessel supply, fuel prices and tariff threats keeping shipping rates strong.

Spot container rates from Asia-to-US West Coast are over $2000 per forty foot equivalent unit (feu), up from $1,140 per feu at the beginning of July, according to Freightwaves’ SONAR data. The Asia-to-US East Coast rates also breached $3,000 per feu from mid-August, up from $2,200 per feu at July’s start.  

Speaking of the rate gains, Simon Heaney, a manager of container research with Drewry Maritime, says “it’s a combination of all those factors,” including strong import activity, tariff threats, and better operating discipline from carriers.

Heaney says US East and Gulf Coast ports recorded 10% volume growth in imports from Asia by the end of the second quarter.

Recent import data showed the strength continued into the third quarter. The Georgia Ports Authority reported 13% growth in throughput at the Port of Savannah to 378,767 twenty foot equivalent unit (teu), its second busiest month on record. Nearby the Port of Charleston saw a 10% year-on-year rise in volume, reaching 200,594 teu for July.  

 

 Spot container rates are up 39% since July 1. (Source: Sonar)

Spot container rates are up 39% since July 1. (Source: Sonar)

US East Coast ports, in particular, are being helped by shifting trade patterns due to the wider Panama Canal locks, Heaney says. The result is that US East Coast gateways are lodging better growth than their West Coast peers.

Asia-to-US East Coast trade lanes are seeing capacity utilization of around 95% compared to an under 85% utilization level seen on containerships on the Asia-to-US West Coast trade, Heaney says.

“The US West Coast is still by far the largest gateway into the US for Asian imports,” Heaney said. “But the demand growth is in the US East Coast.”

Despite the demand growth, carriers are being cautious in adding more capacity along the US East Coast, further underpinning the rate rise.

Of the 19 Asia-US East Coast container service offerings, only three have weekly shipping capacity of 10,000 teu or more, says Paul Richardson, director of container analytics firm PR News Service. While the wider Panama Canal locks promised to allow larger ships to transit to the US East Coast, the capacity is only coming on slowly.

“All these ports along the US East Coast - Newark, Savannah, Charleston - got ready for larger ships,” Richardson said. But carriers are still content to run ships in the 6,000 to 9,000-teu range for their US East Coast service “because the market demand is not there yet,” Richardson said.

US East Coast service also saw some further rationalization as Israel’s Zim Shipping Services announced it would align service offerings with the 2M Alliance, effectively reducing sailings to the US East Coast from seven to five.

On the US West Coast, the trans-Pacific container trades have seen deeper capacity cuts going into the current quarter, which has helped rates in the third quarter. The Ocean Alliance, which includes China’s Cosco and France’s CMA CGM, ceased one weekly trans-Pacific sailing that took out 10,000 teu of capacity.

 

 The Asia-to-US West Coast spot container rate gained 75% since July 1. (Source: Sonar)

The Asia-to-US West Coast spot container rate gained 75% since July 1. (Source: Sonar)


THE Alliance, which includes Hapag-Lloyd, Ocean Network Express, and Yang Ming, also ended a trans-Pacific service, and put a smaller ship on another line reducing capacity 22%.

“The Asia-to-US West Coast has already seen quite a number of service cuts because utilization is much lower on that route,” Heaney said. “That trade needed the most remediation.”

Heaney also says higher rates reflect the emergency surcharges liners put in place to deal with higher fuel costs. Those surcharges were first rolled out to non-US trade lanes, but have become effective for US trades at the start of the third quarter.

Rates are also be strengthening as shippers try to front-run the potential for higher tariffs on imported consumer goods. Although the first round of tariffs on $50 billion worth of Chinese imports largely bypassed consumer goods, the next round of $200 billion in tariffs would hit that trade directly.  

National Retail Federation vice president Jonathan Gold noted that “retailers appear to be getting prepared before (tariffs) can happen.” Heaney agrees tariff fears may be propelling some container growth. But it will not be clear just how much so until import data becomes available.

“The question is how much of the growth in organic and how much is fear driven,” Heaney said. “It’s difficult to assess at this stage.”