SHIPPING: Asia-US container rates jump on tight capacity, high demand amid tariff pause

HOUSTON (ICIS)–Rates for shipping containers from Asia to the US spiked again this week – and have almost doubled over the past four weeks – as demand has surged ahead of the possible reinstatement of tariffs while capacity remains tight.

Supply chain advisors Drewry said the latest sudden, short-term strengthening in supply-demand balance in global container shipping has reversed the trend of declining rates which had started in January.

Rates from Shanghai to Los Angeles spiked by 57% this week while rates from Shanghai to New York jumped by 39%, according to Drewry and as shown in the following chart.

The drastic increases are seen from other shipping analysts as well.

On the Shanghai Containerized Freight Index (SCFI), the Shanghai-USWC rate rose by 58% to $5,172/FEU (40-foot equivalent unit), the largest week-on-week percentage gain since 2016 as strong demand has coincided with tight supply, though capacity is increasing as carriers resume previously suspended services and reinstate blank sailings.

Sea-Intelligence CEO Alan Murphy said almost 400,000 TEUs (20-foot equivalent units) are coming back online in the near term.

“If we aggregate it across June/July for Asia-USWC, then in June, the lines are increasing capacity 12.8% compared to before the tariff pause, and in July, the capacity injection is increasing to 16.5% compared to the pre-pause situation,” Murphy said. “Capacity has also ramped up sharply compared to just a week ago, with this injection of capacity equaling 397,000 TEU across the two months.”

The growth in capacity is shown in the following chart from Sea-Intelligence.

Peter Sand, chief analyst at ocean and freight rate analytics firm Xeneta, said the spike is likely because shippers are so concerned about getting goods moving during the 90-day window that they are willing to pay more.

“Right now, it seems carriers are telling shippers to jump, and some are replying ‘how high?’,” Sand said.

“This will not last because capacity is heading back to the transpacific and the desperation of shippers to get supply chains moving again will ease once boxes are on the water and inventories begin to build up,” Sand said. “Spot rates are expected to peak in June before downward pressure returns.”

Rates from online freight shipping marketplace and platform provider Freightos have yet to capture the dramatic increase, but Judah Levine, head of research at the company, said 1 June general rate increases (GRIs) are starting to push daily prices up sharply.

“Rates have spiked 72% to the West Coast since last week to $4,765/FEU and 44% to the East Coast to $5,721/FEU, with more increases likely and additional hikes announced for mid-month,” Levine said.

Analysts at US logistics platform provider Flexport said they expect a further rush of cargo from southeast Asia to the US West Coast toward the end of June.

Flexport analysts expect carriers to be back to full capacity on the transpacific eastbound trade lane by the end of June, noting that week 23 capacity is 11% below standard levels but is expected to exceed standard levels by 3% by week 25.

Container ships and costs for shipping containers are relevant to the chemical industry because while most chemicals are liquids and are shipped in tankers, container ships transport polymers, such as polyethylene (PE) and polypropylene (PP), are shipped in pellets. Titanium dioxide (TiO2) is also shipped in containers.

They also transport liquid chemicals in isotanks.

LIQUID TANKER RATES
US chemical tanker freight rates assessed by ICIS were mostly unchanged. However, rates decreased from the US Gulf to Europe.

The USG to Rotterdam route is overall steady as weaker demand is being offset by limited availability, particularly for larger parcels. Larger requirements are well represented, with several larger lots of methanol, methyl tertiary butyl ether (MTBE) and caustic soda fixed or indicated to the ARA. There was also some interest in sending some smaller lots of glycols and styrene.

From the USG to Asia, the uptick in interest to rush glycols to beat the deadline to China seems to have all but ended as the market saw only a few new inquiries. On the other hand, several larger parcels of methanol were either fixed or quoted to the region. As contract of affreightment (COA) volumes are being firmed, and due to the absence of market participants, freight rates have eased some, with more downward pressure on smaller parcels.

On the USG to Brazil trade lane, the market has been steady, leading rates to remain unchanged week on week. There was a stable level of spot activity with only a handful of new requirements.

Overall, the market remains slow despite several cargoes being quoted and fixed. Despite the uptick in inquiries there is not enough significant activity that would suggest any increase in demand, with caustic soda, glycols and styrene the most active. The regular owners have space remaining and are trying to fill space while supporting current freight levels.

Activity typically picks up during summer months, but this is not currently being seen. As a result, freight rates are now expected to remain steady for the time being.

Focus story by Adam Yanelli

Additional reporting by Kevin Callahan