Shipping costs have stopped falling and rebounded. Will US ports be congested again?

Since the beginning of the year, shipping costs have been falling continuously. For sellers, the continued decline in shipping costs is indeed one of the few good news when many costs are rising. However, recent data show that the downward trend in shipping costs that has lasted for many months is changing.

Ocean freight rates rise again

According to the latest data released by the Shanghai Shipping Exchange on May 20, the Shanghai Export Container Freight Index rose from 4147 in the previous period to 4162, ending a 17-week downward trend. Among them, the Far East to Europe route and the Far East to the Mediterranean route have seen a slight increase, with the current freight rates being US$5,862/TEU and US$6,614/TEU respectively. In addition, the Ningbo Export Container Freight Index rose by 0.6% from last week, and the freight index of 12 of the 21 routes rose.

As for the reason for the rebound in shipping costs, some analysts believe that this may be related to the lifting of the lockdown in Shanghai and the resumption of work and production of enterprises. Data shows that in April, as many as 260,000 standard containers of export goods were stranded in Shanghai. As various areas in Shanghai are gradually lifted from lockdown, Shanghai Port will usher in a wave of shipments. It is understood that the daily container handling volume of Shanghai Port has now recovered to 90% of the pre-epidemic level.

As of the beginning of this year, international shipping costs have been in an upward cycle for nearly two years. Does the current rebound in shipping costs indicate that shipping costs will rise again? Some industry insiders said that the increase in shipping costs this time was limited, which may be a signal that freight rates are tending to stabilize. There is also a view that it is necessary to release all the inventory in Shanghai during the epidemic, and the freight rate trend will be clearer when the port throughput is stable.

The latest data from the Baltic Freight Index shows that freight rates from Asia to the West Coast of the United States have soared, rising by $1,186 to $13,698/FEU, an increase of 9% compared with the previous period. The China Export Container Freight Index shows that freight rates from the Far East to the East Coast of the United States and the West Coast of the United States have risen by 9.2% and 7.7% respectively.

Market analysts believe that the increase in freight rates on the Asia-US route is not only due to the ongoing supply chain crisis and inflation in the US, but may also be related to the ongoing labor-capital negotiations at US West Coast ports. Some institutions have analyzed that if the negotiations are not smooth, it may lead to continued congestion on the US West Coast and accelerated increases in spot freight rates.

US West Coast port negotiations suspended

The two parties in this negotiation are the International Warehouse and Longshoremen's Union ( ILWU), which represents dock workers, and the Pacific Maritime Association (PMA), which represents port operators and shipping companies on the West Coast of the United States. It is understood that the contract between the ILWU and PMA will expire on July 1 this year, and the two parties need to sign a new contract.

However, previous negotiations between the two sides to sign a new contract have not been smooth, resulting in freight delays and even interruptions. For example, a negotiation dispute in 2002 led to the closure of West Coast ports for 11 days; negotiations in 2008 led to a three-week strike by workers at the Port of Los Angeles and Long Beach, which spread to other ports; and negotiations in 2014 were extended for eight months, during which time work at the ports slowed down.

The second half of the year is the peak season for the global shipping market. If the negotiations go wrong and lead to poor freight transportation, it will trigger more chain reactions. Therefore, this negotiation has attracted the attention of all parties.

Previously, the two negotiating parties had issued a joint statement expressing their confidence in reaching an agreement and claiming to try not to cause further disruption to freight. Industry insiders estimated that the two sides would reach an agreement soon.

However, according to the latest reports from foreign media, the ILWU, which currently represents the workers, has requested to temporarily suspend negotiations and set the date for the next round of negotiations to June 1st. In addition, sources said that there has been little progress since the negotiations began on May 10th. It is understood that the disagreement between the two sides in this negotiation is whether to introduce more automation facilities and the treatment of workers.

Industry insiders said that the ILWU's request to suspend negotiations seemed to be a preparation for a strike. Because there is a "no strike" clause in the current contract between the two parties, extending the negotiation time is waiting for the contract clause to automatically expire on July 1. There is also a view that the ILWU's move is to gain more bargaining chips for itself.

Regarding this negotiation, the executive director of the Port of Long Beach said that the two negotiating parties will resolve their differences within a reasonable time, but not before July 1.

Whether it is freight delays or worker strikes, these are results that sellers do not want to see, especially as Prime Day is approaching. If unexpected situations occur, the losses will be greater. Therefore, no matter what the result is, sellers must be prepared and plan multiple shipping plans to deal with different situations.

As port congestion in the eastern United States intensifies, how will shipping rates trend?

In order to avoid possible paralysis at the west coast ports of the United States, some freight forwarders and cargo owners have already diverted cargo routes to the east coast ports of the United States in advance, which has also led to congestion at the east coast ports of the United States.

Data shows that the combined throughput of US East Coast ports in April exceeded 1.14 million TEUs, up 18.7% from the same period last year, while the import volume of major ports on the West Coast of the United States fell 3.4% year-on-year. Among them, the import volume of Savannah Port increased by 11% year-on-year, and the throughput of Charleston Port increased significantly by 34%, while the throughput of Oakland Port on the West Coast fell by 15.8% and the throughput of Seattle/Tacoma Port fell by 20.1%.

However, like the West Coast, ports on the East Coast face similar risks of delays and congestion due to a lack of truck drivers and cargo-handling facilities.

Bethann Rooney, director of operations at the Port of New York and New Jersey, said that there are currently more than 120,000 empty containers piling up at the port, more than twice the usual number. The large number of empty containers not only causes congestion, but also reduces the port's operating efficiency. A local freight company manager said that if these empty containers could be returned, their efficiency could be increased by two to three times.

Bethann Rooney said that with the start of the peak shipping season, the port's import volume will rise sharply in the coming months. In the past few months, the US government has asked shipping companies to send more ships to pick up empty containers, and the congestion of ports on the West Coast has been alleviated. Now, the East Coast ports also need the same help.

Against this background, what will be the trend of shipping costs in the second half of the year?

Previously, Maersk and Hapag-Lloyd both said that freight rates may drop significantly in the second half of the year due to the decline in consumer demand caused by the Russian-Ukrainian conflict and inflation . Some people in the freight industry analyzed that under the current situation, a sharp drop in shipping costs may not come soon. Experts from the Ministry of Transport believe that the supply and demand situation of global container shipping in the second half of the year, the development of the overseas epidemic and port congestion will continue to determine the market trend.

As the direction of the shipping market is unclear, sellers should still pay close attention to market trends and be prepared to respond.

Ocean Freight

US East Port

West Coast Ports