Despite Red Sea crisis inflation shock, ocean freight rates are headed down on key China-US trade route

Cargo ships dock on the Longtan Container Terminal of Nanjing Port to load and unload containers in Nanjing, Jiangsu province, China, Sept 6, 2023.

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A slowdown in demand for merchandise manufactured in Asia has ocean carriers lowering freight rates on delivery routes from China to the West Coast and canceling sailings, regardless of elevated fears a few new spherical of provide chain inflation attributable to the Middle East conflict.

The cargo value cuts come regardless of the Houthi insurgent assaults within the Red Sea which les some shippers to lately increase container charges as high as $10,000. Shipping giants together with Maersk, which have needed to halt shipments via the Red Sea in latest weeks, proceed to warn of the ongoing threats to the global economy. As the U.S. and its allies launch attacks against the Houthis, fears are operating excessive about an inflation spike for the worldwide provide chain, however the newest delivery contract knowledge reveals that on some key routes that’s not but taking place.

Rates for brand new ocean freight contracts scheduled to enter impact Monday, January 15 for a lot of carriers had been expected to rise above $5,000, however a brand new advisory to shoppers from Honour Lane Shipping reveals Asia to U.S. West Coast container costs coming in under that stage — U.S. East Coast routes stay increased, at $6,500 to $7,000.

Alan Baer, CEO of logistics firm OL USA, stated there seems to be a rising divergence between the delivery rates to the U.S. coasts. “U.S. West Coast rates have rolled over and are lowering,” Baer stated.

More shippers had been anticipated to start avoiding the East Coast and favor the West Coast ports on account of the Middle East points. Diversions from Egypt’s Suez Canal, which feeds into the Red Sea, and the rerouting of vessels across the Cape of Good Hope provides two to 4 weeks to a round-trip voyage, in response to Honour Lane Shipping, and ocean carriers want extra ships on every Asia-East Coast route to take care of an environment friendly community schedule.

But Baer says the information doesn’t help the view that the state of affairs has shifted extra trade to West Coast routes. “Perhaps the diversion away from the U.S. East Coast has not prompted as important a rise to U.S. West Coast quantity as first anticipated,” he stated. 

Baer says there may doubtlessly be extra cancelled sailings to return in February to assist steadiness precise provide and demand.

Still, rates are in flux, reacting to a really delicate market, and pricing pressures will stay, in response to Goetz Alebrand, head of ocean freight for the Americas at DHL Global Forwarding.

“Ocean freight fee changes are made in the identical every week these days,” stated Alebrand. “It may very well be seen as an adjustment to produce and demand. We count on this example to stay fluid however typically see extra possibilities for rates to stay elevated.” 

The ongoing drought points on the Panama Canal, which this week led Maersk to re-route some cargo by a “land bridge,” are including to the worldwide freight complexities.

C.H. Robinson describes the present international ocean delivery state of affairs as one wherein shoppers ought to transfer shortly to safe area in “a aggressive capability market,” in response to a latest commentary from Matthew Burgess, vice chairman of world ocean companies, and it recommends reserving a minimum of three to 4 weeks prematurely for ocean freight on all routes.

Under the U.S. Shipping Act, all ocean carriers have to provide 30-day discover earlier than they’ll impose surcharges or GRIs, however the Federal Maritime Commission has waived this for shipments from Asia to the U.S. being rerouted round South Africa’s Cape of Good Hope.

Maersk declined to remark on new contract rates, citing a quiet interval. CNBC reached out to different main ocean carriers for a remark, however didn’t obtain fast responses.

A lower in Asia manufacturing demand is the explanation behind a choice from MSC, the world’s largest provider, to cancel sailings. “MSC plans to regulate its capability according to the slowdown in demand on Asia – USA and Canada routes because of the Chinese New Year interval,” it stated in a latest advisory to shoppers.  

The discount in China freight demand is according to a CNBC Supply Chain Survey forecast for 2024 wherein logistics executives who handle freight manufacturing orders and transportation — together with these at C.H. Robinson, SEKO Logistics, DHL Global Forwarding Americas, Kuehne + Nagel, OL USA and ITS Logistics — warned of a lower in demand forward of Lunar New Year.

Shipping industry data says don't expect a big rebound in 2024: CNBC Supply Chain Survey

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