The great moment of relaxation or celebration?
Is weak consumer demand curbing imports, finally reducing port congestion, freeing up ship capacity and driving down ocean spot rates? Is this the beginning of the “great denouement”?
Or is the decreasing congestion at West Coast ports the result of a temporary drop in exports from China due to COVID lockdowns, combined with a shift in congestion to East Coast ports? Is the economy still solid and the ocean freight market still fundamentally firm, with the port crisis expected to worsen in the second half of the year, pushing spot rates higher?
“The problem is that you can tell plausible stories in every direction,” Phil Levy, economist at Flexport, told American Shipper. “We continue to look for all the signals to light up one way and for something irrefutable to happen. But there continue to be strong signals from both sides.
Trans-Pacific Spot Rates
Different freight indices tell different stories.
“Right now, the demand [Asia-West Coast] is quite low, almost out of season,” said George Griffiths, global container freight editor at S&P Global Commodity Insights. “We are still seeing a lull after the Lunar New Year with rates down slightly. But this year they have fallen more than they normally do.
S&P Global Platts is currently pricing Asia-West Coast rates at $8,000 per forty-foot equivalent unit, not including surcharges. That’s down 16% from $9,500 per FEU in early March.
In contrast, Platts currently puts Asia-East Coast rates at an all-time high of $12,000 per FEU, up 10% year-to-date.
Drewry’s weekly valuation for Shanghai in Los Angeles came in at $8,824 per FEU on Thursday. That was down 20% from $10,986 in early March – roughly mirroring Platts’ numbers. Still, Drewry pegged the Shanghai-to-New York rate at $11,303 per FEU, down 19% from a January high of $13,987 — bucking the upward trend reported by Platts.
Xeneta values the Far East West Coast spot rate at $8,752 per FEU, plus optional premiums of $1,967 to $5,503. This is up 9% from $8,021 on Jan 2, the opposite of the trend on this route shown by Drewry and Platts.
The Freightos Baltic Daily Index (FBX) – which shows higher rates than others because it includes premiums in its transpacific ratings – was $15,817 per FEU on Thursday for the Asia-West Coast route. This is an increase of 15% since the beginning of the year. Drewry’s valuation for this path is down 21% year-to-date.
In the past, various indices gave different dollar valuations that rose and fell in the same direction over time. Now even the directions indicated by the indexes diverge at least temporarily.
Port traffic jam in full mutation
Spot rates are heavily impacted by port congestion. There were just 41 container ships awaiting mooring in Los Angeles and Long Beach on Thursday, well below the all-time high of 109 on January 9.
The queue was just 33 on Monday – just five ships more than on the same day last year.
Port congestion in Southern California “has eased faster than expected,” Bank of America analyst Ken Hoexter wrote Thursday.
“I think a lot of crossings got canceled last minute, so the queues went down a bit,” Griffiths said.
Xeneta’s chief analyst, Peter Sand, told American Shipper: “The West Coast is getting some breathing room due to fewer boxes leaving Asia. [due to COVID lockdowns] but also, more importantly, shippers transferring inbound volumes from the west coast to the east coast.
“Shippers are really shifting freight to the East Coast more dramatically than before,” he said. “They are fleeing the west coast for fear of massive disruption in upcoming negotiations with unions [on the port worker contract that expires July 1].”
MarineTraffic tracks the capacity of vessels (measured in twenty-foot equivalent units) waiting to enter West Coast ports compared to East Coast ports.
MarineTraffic data reveals a major reversal: the East Coast now has more standby capacity than the West Coast. On Wednesday, ships waiting in the East Coast queue had a capacity of 87,000 TEUs more than those in the West Coast queue.
The eeSea data provider also tracks port congestion levels. It uses ship positioning data to calculate a congestion ratio: ships waiting to berth in regional ports as a percentage of the total number of ships berthed as well as waiting.
eeSea data reveals that Los Angeles/Long Beach congestion has fallen sharply since the start of the year while East Coast congestion has increased. The percentage of congestion off Shanghai and Ningbo in China was below US levels until the middle of last month. Chinese congestion levels are now higher than those in Southern California, according to eeSea.
Deciphering all these market signals has become increasingly complex. Spot rates appear to be receding, but not by all accounts. Congestion appears to be easing, but it may just be moving to other ports, and the declines could reverse when Shanghai’s lockdowns end. US consumer demand also plays a role, but to what extent and for how long remains unclear.
Lars Jensen, CEO of consulting firm Vespucci Maritime, written in a comment published by the Baltic Exchange that China’s COVID lockdowns will reduce demand for space on ships departing from Shanghai in the very short term, which means “there will be more ship space available for other ports in the region and downward pressure on freight rates is therefore to be expected.
“Once we see a reopening, we should expect an increase in freight from Shanghai” which will “lead to strong upward pressure on freight rates.”
Jensen acknowledged that one wildcard is “the growing concern in the United States about the impact of inflation on consumer spending. If consumer spending falls, that… will put a significant drag on export volumes out of China.
There is a growing feeling that this wild card is coming to fruition. Bank of America has just downgraded nine transit fares “due to demand concerns and falling prices.” Trucking data from FreightWaves shows a sharp slowdown in domestic freight demand, including in non-port markets. Retailer Restoration Hardware recently confirmed a sudden drop in demand for its homewares.
“The trucking data is some of the strongest I’ve seen in favor of a slowdown and there’s [weakness] for things like furnishings in particular,” Levy said. These could be “early warning signs” of broader weakness.
Other indicators point to continued strength in freight. “Prices are skyrocketing, the job market is incredibly tight, inventory-to-sales ratios are still lower than before the pandemic, and many would say – due to just-in-case versus just-in-time [strategies] – that you would like this ratio to be higher [than pre-pandemic].”
“If I were to go down to one side, I think it would start to look like a slowdown. But there is a lot of uncertainty. And what is true in the freight market is true for the economy as a whole” , said Levy.
“You’ve got a good chunk of the Fed saying, ‘Hey look, everything’s about to slow down. We don’t really need to do much and inflation will come down on its own. And you have the whole other school of thought that weighs heavily and says, ‘What are you doing? You are far behind the curve. You have to slam the brakes and raise interest rates.
What’s happening at the Fed is “a parallel debate” to the ongoing one on shipping, he said.
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