News / Transpacific carriers hit by softening market just as contracts are up for renewal

A dip in container spot rates is set to weaken the position of ocean carriers serving the transpacific trade as they approach annual contract negotiations.

The Asia-US west and east coast components of the Shanghai Containerized Freight Index (SCFI) declined $193 to $1,771 and $242 to $3,214 per 40ft respectively this week.

The 9.8% and 7% falls follow 6% and 5% drops the previous week and suggest the market has softened at a critical time for carriers.

Annual contract rate discussions have begun with many of the biggest importers, triggering a bidding process for their volumes.

Transpacific contracts generally run from 1 May, and this year will be influenced by the major alliance reshuffle in April, a standalone three-loop service by Hyundai Merchant Marine (HMM) and a service by fledgling container line SM Line, which bought Hanjin’s transpacific trade assets.

HMM has been on a PR offensive this week to boost its brand and “rebuild trust with customers” ahead of the launch of its Asia-US west coast service on 1 April, and is known to be offering attractive rates to secure bookings on its first sailings. And  compatriot start-up SM Line is to launch its single-loop China America Express service next month, connecting Shanghai, Ningbo and Busan to Los Angeles and is also understood to be quoting low rates.

Nonetheless, spot rates on the route are still significantly higher than the $1,300 seen a year ago, but much will depend on what happens over the next few weeks. Previous experience suggests transpacific shippers are likely to delay their negotiations with carriers for a while longer to see if further spot rate erosion takes place.

Meanwhile, the SCFI recorded spot rates between Asia and North Europe and the Mediterranean also softening a little on the week. For North Europe, rates edged down by $55 to $858 per teu and for Mediterranean ports there was a decline of $32 per teu to $844.

Moreover, revised FAK (freight all kinds) rates announced by CMA CGM for 1 March show a $150 per 20ft and $400 per 40ft reduction from the previous maximum to $1,150 and $2,100.

Many Asia-Europe contracts have been concluded “at significantly higher rates” than last year, according to Maersk Line, but carriers will not want to see spot rates on the route fall much further, given that spot cargo represents around 50% of the trade.

Many carrier members of the G6, CKYE and O3 alliances have been subdued in their commercial activities ahead of the formation of the Ocean and THE alliances in April.

However, one joining THE Alliance told The Loadstar this week that that the announcement by the 2M of a new North Europe loop, allegedly to accommodate the slot charter deals made with HMM and Hamburg Sud, were viewed by the trade as “an aggressive act” by Maersk and MSC.