Freight rates across all sectors may be higher than anticipated this peak season. Ocean carriers have increased rates through a series of small general rate increases leading to a large jump effective August 1.
The contributing factors include
- Reduction in Vessel Sharing Alliances (VSA) on trans-pacific trade
- 4% increased demand in first half of 2018
- Record volume anticipated July – October
- Further rationalization of carrier base through mergers or acquisition
- Combination of K-Line, NYK, and MOL into single entity, ONE
- Steadily increasing fuel costs
- Duty tariff hikes announced —10% and 25% increases
- Cancellation of three USWC vessel strings (1 per alliance = 6.7% reduction) and two USEC strings (between 2M and Zim = 4-5% reduction)
- Rush to book before duty rates increases
These successive issues, leading into peak season, have come together giving ocean carriers the upper hand on supply-side economics this year. It started in 2017 with the reduction of four Trans-Pacific alliances to three, and a further rationalization of carriers being absorbed into other carriers, thereby greatly reducing the number of carrier choices.
Volume demand has continued to increase, which is keeping vessel utilization high. The integration of K-Line, MOL, and NYK into a single entity called ONE did not go as well as planned. The ensuing documentation and delivery issues have caused many importers to move their business, at least temporarily, to other carriers, thereby putting more pressure on available space.
Then there’s the recent series of increased duty tariff announcements, which has resulted in uncertainty in trade. Carriers reacted by announcing the cancellation of three vessel strings to the West Coast and two more all-water-services to the East Coast. This resulted in a roughly 6 percent capacity reduction across both USEC and USWC trades.
Affecting Freight Rates Across All Sectors
As this is happening with ocean rates, air freight rates are also on the rise in many markets—well ahead of their traditional peak, which would normally start in September. Domestic trucking rates are also increasing due to driver shortages and ELD restrictions on operating hours. Intermodal truckers continue to struggle with chassis shortages at inland ramps, and short free time, resulting in increased invoicing of unforeseen demurrage and detention costs.
Mohawk will continue to monitor and report on these market trends. Freight rates are cyclical, so what goes up tends to come back down. We remain hopeful for a short peak season cycle this year. If you have any questions, please reach out to your Mohawk customer service representative.