News / Carriers set to cut Asia-USWC capacity in response to weakening outlook

Capacity on the transpacific Asia-US west coast tradelane will be cut by some 7,000 teu a week from May, Alphaliner reports.

However, this may not be enough to mitigate the negative drag of US import tariffs and the continued structural move of trade to east coast ports.

The revised alliance networks, after 1 April, will see HMM terminate its standalone services as it joins THE Alliance, while its South Korean compatriot, SM Line, will delete one of its two strings in favour of a slot charter with the 2M and Cosco and Wan Hai will withdraw one loop of their VSA after PIL’s exit.

The consultant said the combined weekly capacity offer of 298,000 teu on the route would be some 2.3% lower than a year ago.

According to Blue Alpha Capital, total inbound volumes at the top ten US container ports fell by 4.1% in January on the same month of 2019, to 1.7m teu.

Founder of the New York-based consultancy John D McCown attributes recent declines in traffic, including a substantial 12.7% drop in December, directly to the impact of the US tariffs on Chinese imports.

Notwithstanding that the Phase One agreement between the US and China suspended a planned 15% tariff on some $160bn of imports and halved the duty on another $120bn of goods from 15% to 7.5%, there seems little prospect that the remaining 25% tariffs on $250bn of Chinese imports will be removed this side of November’s presidential election.

“While the Phase One agreement removed the likelihood of further tariff increases, the rate reduction in one tranche only marginally reduced the effective tariff rates on China,” said Mr McCown. “The current expectation is that those tariffs will remain in place at least through 2020.”

Blue Alpha Capital is forecasting a 10%  year-on-year decline in volumes at US ports, with the coronavirus crisis a “new negative catalyst” to Q1 volumes.

Indeed, it remains to be seen whether the cargo loads lost from the 50 additional blank headhaul sailings on the transpacific during the virus-induced lockdown in China will be recovered in the second quarter.

And the volume deficit in January provides further evidence that the east coast is continuing to make inroads into traditional west coast traffic. At 915,000 teu, the import volume across west coast port terminals was down 5.1% on the year before, whereas east coast traffic declined by a more modest 3%.

According to Mr McCown, the structural shift from the west coast, spurred by the 2016 expansion of the Panama Canal enabling much larger ships to transit the waterway, is set to continue.

With 75% of the population closer to the US east coast, shippers are saving more than enough in inland transport costs to mitigate the higher sea freight costs charged on USEC services.

“Inbound containers go primarily to where the people are, and lots of west coast cargo moves overland to destinations closer to the east and gulf coasts,” noted Mr McCown.