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CONTAINER QUARTERLY: US container freight market seen easing further in Q4 as demand softens


Import rates to maintain downtrend through year's end

US Atlantic Coast keeps premium over Pacific Coast amid demand strength, congestion

Carriers removing additional capacity to stymie rate declines

  • Author
  • David Lademan    Laura Aebi
  • Editor
  • Richard Rubin
  • Commodity
  • Shipping

Freight rates on the Far East-North America trade lane look to remain under pressure as market imbalances begin correcting and US importers have tepid volume outlooks through the rest of the year.

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As the market passes by the comparatively sleepy import peak season, expectations abound that North American import freight rates will continue their downward adjustments before settling in the new year.

"We saw rates really drop quite a bit before golden week, they haven't necessarily hit a bottom," said Kyle Beaulieu, director of ocean strategy with freight forwarder logistics provider Flexport, said Oct. 6 during a Flexport webinar. "[There is] no stabilization, not clear where that bottom is."

S&P Global Commodity Insights projects rates on Platts Container Rate 13 -- North Asia-to-West Coast North America -- to slide further in the fourth quarter and into the new year before leveling out in February. For October-January, North Asia to USWC rates are projected to drop an average 9% per month, settling at a low of $1,500/FEU in January before rebounding to average around $1,650/FEU in Q2 2023.

For North Asian cargoes bound for the USEC, where stronger demand relative to the US West Coast has kept rates firm, S&P Global expects rates to fall to around $5,000/FEU in December, which would be 52% lower on the year.

"I'm seeing the Trans-Pacific rates continuing to dump even more," a freight forwarder said. "I was surprised to see that they've dipped below $2,000 on the buyer side," he said, adding that short-term spot prices are unlikely to rebound.

Atlantic Coast differential

Even as the market is experiencing significant downside, rates from North Asia-USEC have kept a much stronger footing compared to those to the US West Coast, where oceanside congestion has largely evaporated, particularly in Southern California gateways.

Sources say the widened spread between coasts evolved from wary shippers looked to diversify their cargos away from congestion ridden USWC ports earlier in the year and escape the specter of port shutdowns in the face of a potential longshoreman labor dispute.

Platts assessed the spread between PCR5, North Asia-to-US East Coast, and PCR13, North Asia-to-US West Coast, at $4,100/FEU on Oct. 6, well above the historical average closer to $1,000/FEU. Platts is part of S&P Global.

As rates are primed to continue adjusting downwards, S&P Global projects the spread to average at just over $2,350/FEU for the January-September 2023 period, signaling some return to normalcy as shippers return to USWC gateways.

Carriers remove capacity

While floating spot market rates fell precipitously in the third quarter, carriers unexpectedly demurred from removing capacity until recent weeks, and as such have failed to stymie rate erosions.

However, more recently, carriers have taken to cancelling some services in the face of weak demand, as CMA CGM's Golden Gate Bridge service, the 2M alliance Sequoia and CULines TPX services have, among others, announced suspension of service, with undetermined resumption dates. All these strings service the Asia-US trade lane.

But liners have been more proactive in recent weeks and taken to blanking specific sailings instead of cutting strings, particularly during the Oct. 1-7 Golden Week holiday in China, when export demand historically lulls and carriers lay-up capacity.

"Week 41 (Oct. 10-16) is the lowest deployment of this year on the trans-Pacific eastbound," Flexport's Beaulieu said. "What we're on the lookout for based on a drop in demand prior to Golden Week is services beginning to depart the market. I wouldn't be surprised if we see more services cancelled or suspended."

A US-based freight forwarding source said: "There are still a lot of blank sailings as carriers trying to maximize capacity. There is lots of chaos in schedules due to carriers trying to stop bleeding of profit."

Blanked sailings have not been aggressive enough to match foundering demand, said market analyst company Linerlytica in a recent report, noting that planned withdrawals account for 7% of USWC import capacity, and just 1% of USEC capacity, and will likely be offset by easing port congestion in the coming weeks.

South America not unscathed

A similar story has developed in South America, as rates have not been immune to the falling market, while imports to both coasts saw drops as economic headwinds put pressure on import demand from Asia.

Platts assessed PCR31, North Asia-to-East Coast South America, Oct. 6 at $5,300/FEU, down 57% since the start of the year, with market sources reporting a sour demand-side picture for the remainder of the year.

"The rates from Asia to Brazil are melting," a Brazilian forwarder told S&P Global.

On PCR29, North Asia-to-West Coast South America, rates moved sideways to $2,800/FEU on Oct. 6, down some 55.1% against the month.

"Carriers are dropping rates to compete and stoke demand. Vessels are not sold out, not full and no congestion," another logistics source said.

The port of Santos, Brazil, the largest in Latin America, saw imports decline 4.47% to 596,083 TEU in the seven months through July against the same period in 2021, according to maritime intelligence company Datamar.

All Brazilian ports tracked by the company registered import declines over the same period, with an aggregate loss of 12.28% over the same seven-month time period.