Global News Loading worries drive early peak season frenzy on eastbound trans-Pacific

It’s not demand, but worries about finding peak season capacity later in the summer that have driven the trans-Pacific container shipping market into a frenzy.

Container spot rates are soaring, although still at levels approximately half of the highs reached during the pandemic. Some shippers raw from two years of disruption, which led to some logistics managers losing their jobs, are willing to pay thousands of dollars more to ensure they get slots and container equipment. As of Tuesday, container spot rates, as measured by Drewry, were about $7,800 per FEU from North Asia to the US West Coast, compared with a record high of $15,214 per FEU in September 2021.

The fear of being left behind in the rush is only magnified as container spot rates from Asia to the US West and East coasts have been steadily climbing since April. A June halt in contract negotiations between East and Gulf coast port labor and employers just three months before the current deal expires creates an additional impetus for some US importers to ship earlier.

Demand is no doubt stronger than a year ago. Compared with an albeit weak 2023, US imports from Asia were up 18.2% through May, according to PIERS, a sister company of the Journal of Commerce within S&P Global. US imports from Asia in the first five months of the year are also up 29% from 2019, the last comparable period that wasn’t affected by the historic pandemic-driven upswing in demand.

But how much longer can it go on? The very definition of front-loading suggests that there will be less cargo somewhere down the line that will need to be shipped. Yet US retailers, as measured by Global Port Tracker, keep upping their import forecasts for the rest of the year. The rebound in Asia imports this year is also unique in that it comes after retailers, manufactures and others worked down their inventories and were finally doing significant restocking.

More container capacity is on the way, with at least 10 trans-Pac services either recently reintroduced or set to launch in the coming weeks. It’s a familiar pattern in which the trade normalizes and relationships between ocean carriers and shippers and forwarders often end up the worse for wear.

Forwarders suffering from reduced contracted allocations through the latest service contract cycle grumble, but ultimately aren’t guaranteed slots per contract. Some failures by ocean carriers to honor contracted cargo are due to the physical limitations of ships being off schedule because of recent Asia port congestion or container equipment not being available. Some failures to honor contracts are certainly carriers rolling the cargo, particularly when such freight was contracted at rates deemed barely sustainable by carriers. Seizing the moment The firmness with which ocean carriers held cargo owners and forwarders to contracted cargo, and then sought peak season surcharges earlier and at higher levels, may have surprised some in the industry. Their actions, however, make more sense given the carriers’ experience over the last several years.

During the worst of US port congestion in 2021–2022, container lines saw how much shippers can pay (unless it’s for greener products). In the aftermath, carriers saw how fast their spot pricing power faded and took more modest gains in the annual service contracts, which generally began May 1. A recent report from Sea-Intelligence Maritime Analysis suggests ocean carriers that were slower to raise rates during the pandemic ended up losing out on nearly $22 billion to their competitors. The conclusion drawn by Sea-Intelligence CEO Alan Murphy is stark:

“Carriers who raise their rate at a slower pace — and this effect includes sticking to contract terms a little better than competitors — are not rewarded in the same way when the market turns negative,” Murphy said. “From a financial perspective, it is better to increase rates as fast as possible and not to hope for loyalty when the market turns.”