News / Transpacific spot rates hit highest level for 18 months, but US imports are drying up

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In the past month, container spot rates from Asia to the US west coast have rocketed by over $1,000 per 40ft, bucking the fundamentals of mass unemployment and an economic recession now hitting the US economy.

Last week’s Shanghai Containerized Freight Index (SCFI) recorded a second massive spike, of over 25%, in three weeks to take the spot rate to $2,755 per 40ft – double the rate recorded by the index at this time last year.

According to a JOC report, China-US NVOCCs have accused ocean carriers of “intentionally restricting capacity” and “overbooking ships” to push up freight rates, while the carriers’ response was that they were working from customer forecasts that “did not account for the increased volumes”.

Nevertheless, there is a considerable disconnect between the impressive freight rates gains on the trade, which has seen carriers able to successfully impose all of their GRIs, and the double-digit decline in import volumes.

According to the latest data from New York-based consultancy Blue Alpha Capital, throughput at US west coast ports in May fell by 14.6% year on year, to 782,502 teu, and saw a particular 28.4% slump at Los Angeles.

The author of the report, Blue Alpha Capital founder John McCown, said he expected no sign anytime soon to suggest that the year-on-year volume declines would lessen and a recovery begin.

He warned: “There is no indication that we won’t continue to see double-digit percentage declines in container volume in the months going forward.”

Despite the substantial drop in demand caused by the Covid-19 retail shutdowns, the aggressive blanking strategy by transpacific ocean carriers has kept capacity artificially tight to support rate price hikes.

Moreover, some carriers have already started to ‘unblank’ some of the 120 cancelled headhaul sailings, in order to take advantage of the market conditions, a decision that could risk a collapse in rates.

Noting that freight rates had more than held up on the transpacific, reaching their highest level for 18 months, Bimco chief shipping analyst Peter Sand said the outlook for container carriers remained “poor”, given the expected continued slump in US retail sales.

A return to 2019 US sales retail sales “will take much longer”, said Mr Sand. “High unemployment and lower consumer spending power, which are set to stick around for longer than the immediate health crisis, mean that a return to 2019 sales is not just around the corner.”

Additional fears of a ramping up of the US/China trade war, as tensions between the super powers escalates, is another factor that is thought to have prompted a bout of forward bookings by shippers that has left inventory levels very high.

“Goods are arriving with nowhere to go,” said Mr Sand, noting that sales in clothing stores this April were just 10% of what they were in April 2019. He said falling sales had left US warehouses “stacked”, with retail inventory/sales ratios continuing to rise to levels last seen in December 2018, ahead of hikes in US tariffs on Chinese imports.