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CONTAINER PREMIUMS: Surcharges reduced further amid supply chain anxiety

Highlights

Trans-Pacific premium surcharges evaporate as new entrants offer discounts

Bearish outlook on Chinese exports and supply chain gridlock hit sentiment

All-inclusive container rates for shipping from North Asia to West Coast North America were available at their lowest level in months as additional carrier options and a gloomy outlook on the overall supply chain resulted in a wide segmentation in the spot market.

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Container freight from China to Los Angeles/Long Beach was available as low as $7,800/FEU in the week ended Oct. 15 for shipment on smaller, atypical vessels, but most spot market offers from North Asia to the US West Coast were in the $8,000-$10,000/FEU range, with little or no premium service fees demanded on top of Freight All Kinds rates.

Trade lanes from North Asia to the east coast of North America had fewer new entrants in the market for the longer voyage via the Panama Canal. There was also even less consensus on spot rates, with offers ranging from $11,000/FEU to $18,000/FEU in the week ended Oct. 15.

Rates from Southeast Asia to West Coast North America were similarly offered in an expansive $8,000-$15,000/FEU range, while rates to East Coast North America were quoted from $13,000/FEU to $20,000/FEU.

The lower offers were mostly for bulk or multi-purpose vessels than a fully cellular vessel, a freight aggregator based in Hong Kong said. Offers from major shipping lines were on the higher end of the spectrum with the expectation of better service, sources said.

Shippers are increasingly anxious about paying record prices for container freight and still missing the year-end holiday shopping window, and the emergence of more charter carriers making ad hoc voyages to the US West Coast has added a discount segment for those shippers willing to risk their cargoes with new operators.

"Shippers understand that the business is now port-to-port, with great difficulty going inland and they won't want to pay more when there are no guarantees," a US-based freight forwarder said.

China's manufacturing PMI slipped into contraction in September for the first time since the coronavirus pandemic took shape, throwing cold water on some of the most bullish sentiment for container rates. The Chinese government has been rationing power to factories since September due to a fuel shortage that may or may not be resolved before shipping lines get through a backlog of export cargoes.

"Many factories have had to cancel their shipments because of a lag in production," a Thailand-based freight forwarder said. "If this continues for long, the prices may remain low."

If the shortage of power in China is resolved and factories return to full capacity, rates could rebound as soon as next month as shipments ramp up again in anticipation of outages around the Lunar New Year holidays beginning Feb. 1.

Container rates from Asia to Europe continued their gentle bearish movements over the course of the week as demand continues to fall slightly following the securing of freight volumes ahead of the Christmas holidays.

"Christmas has been and gone in terms of demand for the market and so volumes are coming down a bit at the moment," said a UK-based freight forwarder. "Even so, with the delays in the market, there could be a lot of crying children on Christmas morning because some shippers may have waited too late in the hope that rates fell further."

Platts Container Rate 1 – North Asia-to-North Continent – was assessed at $17,000/FEU on Oct. 15, down $250/FEU from a week ago.