News / US east coast the next killing field for ocean carriers, as rates continue to fall?

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Spot freight rates between Asia and US east coast ports fell another $39 per 40ft in the past week, to $3,605, some 30% below their February peak.

And transport consultant Alphaliner said it expected the decline to continue, given the influx of new capacity in the coming weeks.

According to Alphaliner, six new strings are stemmed to be added to the Asia US east coast (USEC) route by the end of next month – an estimated extra 26,800 teu of slots a week.

The new services go via the Panama Canal, with the exception of Zim’s Seven Star Express (westbound via the Suez Canal), taking the weekly carrier offering up to around 125,000 teu by the end of May.

However, Alphaliner estimates that the weekly demand will stand at only 100,000-110,000 teu and said freight rates would come under further pressure and dip below $3,000 per 40ft in a relatively short period of time.

The carriers have reacted to increased demands from shippers to the US to avoid congestion-strained US west coast ports and word on the street suggests some cargo will continue to be routed via the east coast, despite the existence of a new five-year labour agreement and a significant easing of terminal congestion.

However, notwithstanding the moral message coming from some shippers of avoiding putting too many eggs in the Pacific ports basket, it remains to be seen how long in practice the cargo routing diversion will continue.

According to Alphaliner data, volumes processed at the 11 main USEC ports increased by 26% in the first quarter of the year, compared with the same period of 2014; the growth coming at the expense of USWC ports, where volumes declined by 6% in the first three months.

“As port operations in the USWC gradually return to normal, part of the gains at USEC ports could return to the west coast, which could worsen the oversupply on the all-water route in the coming months,” said Alphaliner.

It is not difficult to understand the attraction for carriers of filling their ships with more cargo on the headhaul Asia-USEC route, given that spot rates still command around a 100% premium on the USWC market, despite the accelerating downward pressure.

Indeed, the strategy of the restructured Zim line is to ‘follow the sun’ where the best rates are, and the Israeli carrier will no doubt have enjoyed a positive first quarter, assisted considerably by its ad-hoc sailings to the USEC when the Pacific ports were in the grip of the labour contract crisis.

Alphaliner notes that the raft of planned new services between Asia and the USEC will include newcomer Hamburg Sud, which will become a vessel provider on the Vespucci/APNE service operated with CMA CGM.

In a press conference last week to accompany Hamburg Sud’s annual operation report, the German carrier’s chairman, Dr Ottmar Gast, acknowledged that the company must reduce its dependence on north-south trades, especially in South America where freight rates have been hit by the cascading of larger tonnage from east-west routes.