Ocean carriers have been hiking their rates in recent weeks, surpassing the $3,000/40’ container mark to West Coast Ports earlier this month for the first time ever, then passing $3500/40’ a week later. Previous record high was back in July of 2010. Ironically, this is happening after the carriers have reinstated nearly all void sailings, and while introducing or reintroducing as many as five service strings. Still, there appears to be insufficient capacity deployed across the trade lane to handle the vast amount of cargo trying to get out of China.
What is the Cause?
Some of the drivers are obvious. COVID-19 caused factory shutdowns that are now releasing goods to satisfy pent up demand, more personal protective equipment (PPE) is on the move, and USA-China issues on trade relations have heated up again. There is also the ongoing threat of a second wave of the virus looming, which increases the need to bring cargo to market before another round of potential shutdowns this fall. Other contributing reasons include equipment imbalance—with shortfalls most acutely in Shanghai, Taiwan, and Vietnam—and both driver and chassis shortages in U.S. West Coast ports, which are slowing delivery time and the return cycle.
Constricted Ocean Capacity
The bigger question remains—why is it taking ocean carriers so long to bring on extra-loaders and/or enough service strings to offer adequate supply? There is no question that carriers are managing capacity to their benefit better than ever before. With so much consolidation on the trade lane in recent years, we are left with three major vessel sharing alliances comprised of two to four owners each, making capacity collaboration much easier across fewer owners. Are the carriers profiting from their own delay in bringing on enough capacity? Most, if not all carriers are posting profits this quarter in the wake of the most impactful pandemic of our lifetimes, which put more than 550 containerships out of service just a few months ago.
Recently, the inactive fleet has dropped to 260 containerships, meaning about 5% of world fleet is still undeployed. Many of the vessels that remain are not suitable for the trans-pacific lane, therefore we will not see much more capacity brought in. Rates will remain high for the foreseeable future until most of the traditional peak season cargo moves into place for fourth-quarter holiday sales. We anticipate a downturn in these record high rates by mid-October.
If you have any questions, please reach out to your Mohawk Global customer service representative.
