Strong South American import demand prompts container shipping rate hikes

Freight rates to ship containers from Asia to South America are likely to increase in June as strong goods demand continues to strain the supply of empty containers and space on ships, market sources said.

German shipping line Hapag-Lloyd announced May 27 that it would begin assessing a Peak Season Surcharge for shipments from East Asia to the West Coast of South America of $1,450 per forty-foot equivalent unit (FEU) beginning June 14. That is on top of the current rate valid through May 31 of $8,850/FEU including a PSS of $700/FEU.

Prioritizing capacity

Unprecedented US import volumes mostly from Asia during pandemic lockdowns have compelled shipowners to prioritize carrying capacity for the trans-Pacific eastbound trade lane from China to the US West Coast, leaving fewer ships available to make the journey farther south to Chile, Colombia and Peru.

But import volumes from Asia are also strong in South America, and particularly in Brazil. Hapag-Lloyd also announced a $600/FEU General Rate Increase (GRI) effective June 15 for the East Asia-to-East Coast South America trade lane, adding to rates that had already climbed to $6,400/FEU including a PSS of $1,450/FEU valid through the end of May.

Shipping lines operating on China-to-Brazil trade lanes have been limiting contract volumes for shippers this year, in many cases cutting their volume allocation by half with anything else requiring a spot market booking, said Carlos Fuchs, director of freight forwarding firm Royal Cargo do Brasil.

"The normal peak season is from September or October to January, but this year we are having our biggest volume in May, which is normally not a good month," Fuchs said.

Brazilian economic support

A Brazilian government program to counter economic harm during the coronavirus pandemic provided low-income segments of the population with monthly payments, boosting demand for consumer goods made in China, said Fabrizio De Paulis, managing director at De Paulis Logistics in Brazil.

With import demand expected to remain strong in the months ahead, and an already-sizable backlog of cargoes coming from Asian factories, the GRIs and surcharges nominated for June shipments to South America indicate that the upward trend for rates will continue, De Paulis said.

"The situation for shipments from China to Brazil is much worse now with no space on ships available and cargoes constantly being rolled," De Paulis said. "The market looks like it can continue this way with imports from China increasing from the start of the second quarter through the end of the year."