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Third GRI in a month pushes Asia-US container rates higher

Spot rates to the West Coast are up 69 percent year over year. Photo credit: Shutterstock.com

Trans-Pacific container lines successfully pushed up eastbound container spot rates with the third general rate increase in a month.  

The cost to ship an FEU from Shanghai to the West Coast surged 8.5 percent, to $2,920 in the first week of July from the prior week, according to the latest reading of the Shanghai Containerized Freight Index. The FEU spot rates for the routing to the East Coast rose 4.7 percent, to $3,459, in the same period. 

Forwarders tell JOC.com that with GRIs, peak-season surcharges (PSSs) and bunker-fuel adjustments all taking effect this week, freight rates in the eastbound trans-Pacific vary from shipper to shipper

“The rates are all over the place. It’s crazy,” said Christian Sur, executive vice president, sales and marketing, at the NVO Unique Logistics International.

Carriers this week were quoting rates of $2,900-$3,000 per FEU to the West Coast and $3,300-$3,500 per FEU to the East Coast, which included the July 1 bunker fuel adjustment factor (BAF) and the ocean transportation component, he said. 

Compared to a year ago, spot rates, as measured by the SCFI,  to the West and East coast are up 69 percent and 24 percent, respectively, as displayed on the JOC Shipping and Logistics Pricing Hub. US Asia imports through May are down 9.8 percent compared to the same period a year ago, according to IHS Markit data. Carriers announced more than 75 blank sailings for May and June, although some previously announced blanked sailings were reinstated, according to consultancy Sea-Intelligence Maritime Consulting.

Carriers say they’re reluctant to add more capacity into the trade by reducing the number of blank sailings because shippers can only provide a modicum of certainty on their volume needs over the next two months. The threat of another wave of lockdowns as COVID-19 batters much of the country, specifically Arizon, California, Florida and Texas, makes medium-term demand for Asian goods unclear, carriers said. 

GRI wipes away BAF

Most carriers adjust the bunker adjustment factor every quarter, and the price is based upon fuel prices the carriers paid in the previous quarter. Since the price of oil, and therefore the cost of low-sulfur fuel oil (LSFO), dropped in the second quarter, NVOs and BCOs anticipated that the fuel component would mitigate much of the GRI, but that didn’t happen, he said.

“The GRI ended up negating the BAF,” Sur said.

The prices charged to BCOs, and to NVOs with named account (contract) rates, was complicated further because some carriers attempted to add a PSS on top of the GRI. Those carriers that approached customers with PSSs listed them at $800 per FEU, but the peak-season surcharge that stuck was about $300 per FEU, Sur said.

Technically, BCOs and NVOs with contract clauses that specify they will not be charged a PSS are not obligated to pay that surcharge. However, when carriers have leverage, as they do in the current market where space is tight and NVOs say their containers continue to be rolled at Asian ports because of blank sailings, they end up paying it.

“I could have said ‘no’ to the PSS, but then I wouldn’t have gotten any lifts,” said David Bennett, president of the Americas at the NVO Globe Express services.

While carriers pushed strongly to get the surcharges from NVOs, they generally are not as aggressive with BCOs, said Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association. A shippers association represents a number of BCOs and for contracting purposes is considered a BCO, he explained.

When carriers approached him with peak-season surcharges, Swofford checked with his member companies and they said that they had sufficient inventory to carry them through for a while. “I told them (the carriers) ‘No,’” he said.

NVOs say it appears that carriers will be able to hold firm on pricing well into July because bookings out of Asia remain strong, with inventory replenishment, seasonal merchandise and personal protective equipment driving demand. 

“The reality is, I think this is the peak,” said Jon Monroe, who serves as a consultant for NVOs. If that turns out to be the case, it would be an unusually early peak-shipping season, which normally occurs in August-October.  

US imports will fall by double-digits on a year-over-year basis each month through October, and then moderate in October, with a 7.9 percent decline, according to Global Port Tracker, produced by Hackett Associates on behalf of the National Retail Federation. GTA Forecasting, part of IHS Markit, projects that US imports from Asia in 2020 will decline 7.6 percent from 2019, but rebound sharply in 2021 with an 8.3 percent increase.