Carriers reinstate capacity on Transpacific route after rates rise 50%

Dive Brief:

Ocean carriers have begun reinstating blank sailings along the Transpacific route to the U.S. West Coast, but canceled trips are set to increase again in the third quarter, according to the most recent release from Sea-Intelligence. Other routes continue to see decreased capacity, but the route heading to the West Coast is seeing "a significant reduction in blank sailings."
"The data ... supports the notion that the carriers had simply removed too much capacity from the West Coast trade for a period, and now need to ensure sufficient capacity is available [to] address the resultant roll-pool of cargo," Sea-Intelligence CEO Alan Murphy said in the release. "Once this is addressed, the blank sailings level is set to rise again."
Sea-Intelligence also revised its carrier profitability forecast in light of rates increasing "substantially." Carriers would take home $9 billion in profit at the current rate levels, but a rate war in the second half of the year could result in a $7 billion loss.

Dive Insight:

As the coronavirus pandemic has unfolded, weekly port calls have fallen year over year in 2020, according to data presented during a webinar by Jan Hoffmann, the chief of the trade logistics branch at the United Nations Conference on Trade and Development. But China's port calls have improved to the point where they're showing year over year growth again, Hoffmann said.

Given a basic understanding of supply and demand, one might expect a drop in demand for ocean shipping to lead to lower prices. But that has not been the case. Rates from China/East Asia to the North American West Coast have risen more than 50% between May 20 and June 19, according to numbers from Freightos.

"Generally, elevated or spiking rates reflect healthily or surging demand for freight like we saw pre-trade war or like we see before each Chinese New Year," Judah Levine, the research lead at Freightos, said during the same MarineTraffic-hosted webinar following Hoffmann. "But we're in the midst of a ... pandemic and we're in a low consumer demand environment, and ocean volumes have been hard hit," he said.

The World Trade Organization (WTO) expects merchandise trade to drop nearly 19% year over year in the second quarter.

"The fall in trade we are now seeing is historically large — in fact, it would be the steepest on record," WTO Director‑General Roberto Azevêdo said in a statement earlier this week. "But there is an important silver lining here: it could have been much worse."

Blank sailings — allowing carriers to better match capacity with demand — have kept rates aloft, Levine said.

An unexpected uptick in ocean shipping demand earlier in June has met the low capacity environment and resulted in rates "really spiking," he said.

Still, most trade lanes continue to see an increase in the number of blank sailings as carriers expect the demand downtown to endure, according to Sea-Intelligence.

"Is this the harbinger of a post-pandemic rebound in the US?" Murphy said of the reinstatements along the Transpacific route. "The data for now does not seem to support such a hypothesis. If this was the case, we should expect a similar development in the Transpacific trade to North America East Coast as well as the North and South Atlantic trades — but that is not what the data shows."