News / Transpacific peak season may already be over, as US inventories decline

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The early peak season for container shipping may have ended, analysts at Linerlytica said today.

While last week’s collapse of transpacific spot rates has yet to fully filter down to other container shipping routes, dips in Asia-North Europe and Asia-Mediterranean rates, and operators’ inclination to reduce rates, suggest the next attempt to hike rates, on 1 July, which should mark the start of the peak season, is likely to end in failure.

On Friday, the Shanghai Containerised Freight Index (SCFI) showed the Shanghai-US west coast rate lost 33% from the previous week, to end at $2,772 per 40ft, which, in combination with the week before, represents the largest fortnightly loss on the SCFI since it was established in 2009, the 1 June rate hikes now entirely reversed.

The downward pressure has spread to the US east coast trades, where rates dropped 21% week on week, to $5,352 per 40ft.

Shanghai-North Europe rates dipped 0.5% to $1,835 per teu, while Shanghai-Mediterranean rates fell 4% to $3,063 per teu.

“Cracks are starting to appear, with European contract freight futures for August trading below June prices, suggesting the market may have already reached its peak for this year,” reported Linerlytica.

Futures retreated by 3%-8% over the past week on reduced daily trading volumes, as scepticism grew over the sustainability of carrier rate hikes planned for 1 July.

The Middle East tensions failed to lift market sentiments and freight rates to Europe appear to have peaked for this year, as the price for August contracts closed below that for June deals. Yesterday, the price for August contracts closed at $1,875, compared with $1,883 for June.

The crash in transpacific rates reflects the fierce competition by carriers struggling to fill the vessel slots that have been added since the end of May.

Cargo volumes were inadequate to fill the more than 386,000 teu of slots sailing to the US west coast last week, spurring carriers to undercut each other.

The rate premium for South-east Asia has also been eroded as front-loading activity slows as the 90-day (from 12 May) tariff reprieve for US imports outside of China reaches its tailend.

New analysis from Sea-Intelligence Consulting reveals US inventories have been in decline since a peak last September, suggesting there was little front-loading by US shippers in anticipation of tariffs – unsurprising, given that few had any idea of the scale of the tariffs to be unveiled on 2 April.

However, Sea-Intelligence noted that data from the US Census Bureau up to the end of April, “shows the market went into the trade war with relatively modest inventories and no sign of material stockpiling beyond what could normally be assumed”.

Source: Sea-Intelligence Consulting (click to expand)

Meanwhile, as at the end of April, US retailers and wholesalers on average had inventories covering just over five and a half weeks of sales, while US manufacturers could cover just under seven weeks.

Source: Sea-Intelligence Consulting (click to expand)

“Overall, this points in the direction that inventories were not ramped up prior to the impact of the trade war and, with the sharp dip in demand from China to US on container services in April, we should expect the relative inventory size to decline in May and June,” the analyst said, noting that the all-important retail sector had reduced excess inventory by 61% since September.