News / Carriers keep the price pressure on – a 'shock and awe' PSS the standout

Photo: OOCL

Container spot freight rates on the transpacific and Asia-Europe trades rose for the sixth consecutive week, although the sharp increases seen last week have tapered a little.

As has become the norm since the Red Sea crisis led to the effective closure of the Suez Canal for most Asia-Europe and several Asia-North America east coast strings, the summer peak season has fully arrived a good month early.

“The reality is that we are seeing shippers and importers booking large volumes of containers due to the ‘long way around’ the Cape, adding to transit times versus Suez, still nonexistent in reality. So there is a peak in demand against this global backdrop that has changed shippers’ strategies, with critical paths adjusted to accommodate longer transits,” one large European freight forwarder told The Loadstar.

“Peak season has shifted and the just-in-case concept is back in favour over just-in-time. Retailers want stock in to flog it while avoiding the air freight mode and its higher costs,” he added.

This week’s World Container Index (WCI) from Drewry Freight saw the rate on its Shanghai-Rotterdam leg rise 5%, to $3,768 per 40ft, while its Shanghai-Genoa route was up just 1%, to $5,139 per 40ft.

Source: Drewry World Container Index

With Asia-Europe sailings for the remainder of June already heavily booked, carriers are pressing ahead with another spot rate hike next week, with MSC’s new FAK (freight all kinds), for implementation on 15 June, of $6,000 per 40ft to North Europe and $6,500 per 40ft to West Mediterranean ports.

These hikes would appear to have a good chance of sticking, as today’s Shanghai Containerised Freight Index (SCFI) – which records rates quoted for the forthcoming week and, as such, can indicate the direction of the following week’s WCI (as it did last week) – recorded a 15.5% % gain on the Shanghai-North Europe leg and 11.5% on Shanghai-Mediterranean.

The spot rate rises are being accompanied by a variety of peak season surcharges (PSSs) on shipments under long-term contracts – CMA CGM and ONE are two carriers that have announced PSSs of $1,000–$1,200 per 40ft – also effective on 15 June.

Another European forwarder told The Loadstar: “I can’t help thinking that some of the hype around moving into a peak season is a little manufactured by the carriers – I do think we’ve entered a peak season, just not one necessarily as strong as the carriers are making out.

“We are seeing a rise in demand, and we are seeing an increase in bookings, which was expected at some point with shippers delaying for a period to see how the Middle East situation would evolve. But whether the demand is enough to justify the introduction of the high PSS levels on contracts, I’m not sure.

“Carriers are blanking sailings and omitting ports in Asia, and being more controlling with allocation agreements, with some rollings,” she added.

Forwarders also report some carriers reverting to the familiar tactic of “reducing allocations and then advising if overbooked that the FAK or higher tariffs will apply”.

With June largely booked, the focus for carriers and customers is turning to July’s demand-supply ratio, with MSC this week unveiling a new FAK rate for 1 July of $7,500 per 40ft to North Europe and the Mediterranean.

“Carriers are saying they are full for the whole of June, and some are saying they’re fully committed for July also – but then again, they would do, in the current market, to keep the pressure on rates.

“This is on all key routes and lanes: TP, westbound Asia and everything in between,” a forwarder told The Loadstar.

While pricing on the transpacific trades behaved in a similar fashion to Asia-Europe – the WCI’s Shanghai-New York rate was up 7% week on week, to $5,870 per 40ft, while the Shanghai-Los Angeles leg was up 3%, to finish at $4,683 per 40ft – new carrier rate increases announced this week for July look very hefty.

The standout was a “shock-and awe” PSS announcement from CMA CGM of a $4,000 per 40ft surcharge on all Asia-US shipments from 10 July, indicating that transpacific freight costs could soar next month.

US west coast forwarder Freight Right noted that US shippers were “grappling with immense confusion and marketing anxiety regarding impending July tariff change”, and explained: “The current market strain represents an early, highly compressed peak season, rather than the traditional timeline typically seen later in the year.

“This elevated rate environment is expected to persist through the remainder of June and throughout July, as ocean carriers are highly unlikely to voluntarily relinquish their pricing leverage,” it said.