Carriers on the trans-Pacific eastbound lane have successfully imposed a Peak Season Surcharge (PSS) effective June 15. Although trade volumes continue to lag, the carriers’ policies of aggressive capacity management hav resulted in upward pressure on rates. So far this month, rates to the US West Coast have increased by 29.2% while US East Coast rates have increased by 18.9, according to the Shanghai Container Freight Index (SCFI). Rates are now at a 10-year high.
After carriers on the Asia to USA trade-lane blanked 74 sailings in the second quarter of 2020, they announced a continuation of their blank sailing programs through the third quarter of the year. This will continue to put upward pressure on rates. The current practice of the carriers is to restrict allocation of weekly space to customers at contracted rates based on their MQC (minimum quantity commitment) divided by 52 weeks. In other words, a customer with a 1000 container contract would receive an allocation of space equal to 20 containers per week. Carriers are routinely charging a premium, above the already record high rates, for any space required over this formula. These premiums could be as much as $500/container or more.
Carriers are prepared to introduce additional sailings if demand warrants that; however, they find it less controversial to initially blank sailings and add them back into the schedule than to cancel them later. They also have the option to deploy “sweeper” sailings. This is when they deploy a sailing purely to clear backlog without recommitting the vessel into regularly scheduled service.
With space being more critical to the US West Coast than to the US East Coast, the rates differential between the two has narrowed. This has many of our customers who ship to destinations east of the Mississippi River evaluating routing options. This cargo has traditionally moved intermodally via West Coast ports like Los Angeles/Long Beach, Seattle/Tacoma and Vancouver/Prince Ruppert. In many cases it is more economically advantageous to move through east coast ports even if the logistics plan includes container transloading to expedite the freight upon discharge as a means to narrow the transit time disparity between east and west coast discharge.
Worldwide Logistics is working with many customers to reimagine routing options in an effort to maximize protected space and minimize the impact of rate increases and disruption of lead times. As always we are monitoring the market very closely and will continue to provide timely updates while simultaneously working to mitigate the effect of increases on our customers to the greatest possible extent.