With the growing concerns on freight rates and fluctuating tariffs, the fleet idle capacity is now at 1%, but is expected to peak the summer season along with an increase in rates, reports Freight waves.
Weekly updates on spot rates
Sometime ago, the Shanghai Shipping Exchange, which measures spot rates for exported Chinese containers, had released their weekly update on the China Containerized Freight Index (CCFI).
It says that the American-destination lanes had the strongest weekly growth, with the West Coast up by 3.9% and the East Coast up by 4.6% on the week.
Active dry van segment
The dry van spot rates, hailing from the Los Angeles market, which includes the Ports of Los Angeles and Long Beach to the Dallas market, are moving up from an average of $1.69 in March to $1.77 over the past seven days, as shown in DAT’s RateView tool.
Stifel analyst Benjamin J. Nolan reported in a maritime industry note this morning that year to date, container shipping charter rates for 9,000, 4,400, and 2,000 TEU vessels were up 29%, 3%, and 40% respectively, year over year. Nolan wrote that with only 1% of the global container ship fleet idle, rates are poised to respond quickly to an uptick in volume once the summer peak season commences.
Upwind in shipping cycle
Nolan points to a routine shipping cycle, as he says that “…. historically idle capacity typically falls during the summer months due to seasonably higher demand with the trend continuing through mid-2017. Idle capacity typically remains low through August before increasing in September as seasonal demand falls.”
A visual representation of what Nolan says as historical relationship between idle capacity and average container ship earnings is seen here.
Long term Demand will fade
“Unfortunately, there could be lower container demand growth due to the tariffs imposed by both China and the U.S., which could become a long-term headwind for the space, but should have little to no impact in the near term,” Nolan wrote.
The American Association of Port Authorities (AAPA) wrote an open letter to U.S. Trade Representative Robert Lighthizer regarding their concerns about the potentially damaging effects, that these prevailing or upcoming tariffs could have on the international trade and port traffic.
“We support and encourage steps focused on expanding exports rather than creating new import restrictions,” wrote the AAPA.
“With today’s worldwide supply chain, American manufacturers, farmers and businesses often rely on ports to handle the raw materials and semi-finished components needed for production here in the United States. These imports enable U.S. manufacturers to export their products and enhance their international competitiveness.”
China pushes into US market
The South China Post reported that Chinese manufacturers are adding shifts and working overtime to move product into the United States before tariffs hit.
Cixin, a ball bearing manufacturer in Ningbo, is considering plans to rush shipments of its product to the United States, which takes 30% of its exports, before steel tariffs hit.
The container shipping industry is still working through a capacity glut that collapsed rates in the back half of 2015 which was down through the majority of last year.
But, insights from container fleets’ order books, it is expected that the new capacity will be slow to come online for the rest of 2018 and will slow further in 2019.
Oil prices sore shipping
The rise of oil prices (Brent Crude is trading at $74.07 per barrel, up 29.1% in the past six months) will eventually drive bunker fuel costs up, but as supply and demand is slowly returning to equilibrium, fuel prices are not expected to affect the container rates.
Nolan concludes by saying that the, “Global trade is healthy, fleet utilization is tight, and supply is not excessive. However, with an influx of near-term deliveries and box rates still unimpressive, we expect it could continue to take time for shipping rates to improve and container shipping equities are likely to remain range bound.”
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Source: Freight Waves
