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CONTAINER PREMIUMS: Rates discounted ahead of China's Golden Week holiday

Highlights

Asia-to-West Coast North America rates drop to $11,000-$13,000/FEU

Lull is expected to be temporary with further export surges on the way

All-inclusive container rates from North and Southeast Asia to North America eased ahead of China's Golden Week holiday beginning Oct. 1, but lull is expected to be temporary as there has been no change to strong demand.

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Rates including premium service fees from North Asia to West Coast North America were mostly in the $15,000-$17,000/FEU range, especially from major carriers. But some availability was reported in the $11,000-$13,000/FEU range for bookings on smaller 3,000-5,000 TEU capacity ships chartered by Chinese freight forwarders to meet strong demand for trans-Pacific sailings.

For the Southeast Asia-to-West Coast North America trade lane, premium rates were heard as low as $11,500/FEU compared to the lower limit of $16,000/FEU a week ago. Other spot market quotes remained in the $15,000-$20,000/FEU range this week.

While there was a huge decline in rates to West Coast North America, prices to East Coast North America retained more of their value, sources said. The all-inclusive premiums from Southeast Asia to North America dipped to around $20,000/FEU towards the end of the week, against nearly $22,000-$25,000/FEU a week ago.

The discounts were partly driven by the desire of charterers and co-loaders to fill up space on ships with up-front payments before the China's National Day festival and may no longer be available when Chinese market participants return on Oct. 8, sources said.

"I think there's some market resistance to the charter vessel carriers' payment terms and it could be causing rates to decline," a US-based freight forwarder said. "But many expect rates to go back up after the normal holiday slowdown. Demand does not seem to be declining."

There was also greater uncertainty around cargo flows from China. The Golden Week holiday and a shortage of power to Chinese factories could slow production of export goods, but increasing ship congestion around Shanghai and Ningbo-Zhoushan could prevent the ports from catching-up on a huge backlog of shipments.

"The reason for the slump in prices is not weak demand but with the current space crunch and port congestions, the carriers don't see the need to increase prices when they can't offer good services," a logistics provider based in Hong Kong said.

Another surge expected ahead of Lunar New Year

The weakness in prices and bookings is likely to be short-lived as shipments are expected to pick up again by the end of the month, and shippers may start gearing up to build stocks before Lunar New Year in February.

"Chinese New Year is earlier this time – it's on Feb. 1 – so there is definitely going to be a rush of cargo after the Golden Week and the blank sailings are going to result in a higher pile-up," the logistics provider said.

In Vietnam, lockdown restrictions are easing but shippers continue to struggle with container shortage and backlogs.

"The restrictions have been relaxed in most parts of the country and the movement has become better but the situation at ports is still bad, we are struggling to book space and carriers continue to blank sailings," a freight forwarder based in Vietnam said.

According to sources, major carriers had deployed Vietnam's share of capacity in Yantian and other ports to avoid the congestion and delays when the former was under a lockdown. But as normalcy returns in the Southeast Asian country, carriers are likely to ramp up capacity to meet built up demand which in turn, may lead to supply reduction in China.

Premiums an option for prompt shipments to Europe

Premium bookings remain the exception rather than the rule itself in the Asia to Europe trade, with some shippers heard paying above FAK market value in order to load cargo more promptly.

There are diamond tier and sea priority rates present in the market, but they are used more sparingly than on the trans-Pacific headhauls, one logistics source said.

"Those rates are out there, and we ship on those," the source said, noting the two-tier market structure.

Despite the mixed sentiment, Platts Container Rate 1 -- North Asia-to-North Continent -- was assessed unchanged this week at $17,500/FEU, holding near all-time highs, with expectations for stability in October.