Freight Rates and Container Shipping Costs up 350% from China
If you are an importer from Asia into the U.S. you are tearing your hair out trying to figure out how to afford the dramatic increases in freight rates, coupled with the tremendous space problems occurring in every port throughout Asia, especially China. Freight rates have increased an average of 350% since this time last year if you ship from China to the U.S. West Coast ports.
If you are a student of the events leading up to the present day situation, you will remember it began around last August when the financially drained Ocean Freight Carriers decided to band together and stop the bleeding by parking most of their older, smaller vessels right off the coast of Singapore to create a limitation on capacity, with every intention of raising freight rates immediately. This is exactly what happened in September last year, first with the Freight Forwarders who are the bastard children the Carriers love to kick around, while protecting the ridiculously low rated contracts all of the BCO's held, from a guy that ships 50 Feus a year on up to Walmart. What happened was the inevitable, the BCO's started having a hard time getting space because they were still paying $750/40 from China to the West Coast, while the Forwarders got more space while paying $1,000-$1250/40 on through the end of the year. Then came the first boom being lowered on Jan 15, everybody, including Walmart, had to pay an average of $800 increase immediately or they wouldn't get on board. Since Chinese New Year was coming up, the Carriers timed it perfect and got away with it. But then it became like Crack, and the Carriers were hooked, so another increase came in March, right after CNY, which has never happened, nobody is shipping, China factories are just getting back from 2-3 weeks of playing Mahjong. However guess what, everybody was shipping, due to delays of production from before CNY, cargo not shipped due to space problems, increases in orders in the U.S. due to lack of inventory, and we were off to the races and haven't looked back.
Yes now since May 1, which is always the traditional GRI (General Rate Increase) As all service contracts are renewed between the Carriers and the Shippers, June 15 which was the traditional PSS (Peak Season Surcharge) we are indeed looking at rates from China to the U.S. West coast around $3,000/40 and climbing.
I haven't seen it this high since that brief period during the Longshoreman's Dock strike in the West Coast in Oct and Nov of '02.
And before that in the beginning of '85 before rates plummeted by year's end. Last Summer an importer paid about $2500-3000/40 to ship to interior regions to the door, $2000-$2500/40 to the East Coast cities to the door. Now the rates are over $5,000/40 to interior regions door, and around $4500/40 average to East Coast cities door . Right now coming into July 4th, with the season just kicking in to full swing, which usually lasts through September in a bad year, and through November in a good year, we are still experiencing space constraints, although now that most Carriers are bringing in new vessels, and there has been some softening of space constraints, everything is being tightly monitored and if you don't pay you don't ship. This is the market the Carriers have always dreamed for.
It's payback from '08 and '09 where last year the average carrier lost half a billion, with Maersk reportedly losing $2b, wow !.
So where do we go from here?
Well we have the FMC doing their fact finding investigation looking into vessel capacity, container availability,( unfair practices by the carriers , collusion?) You would think possibly, however when the report due July 31 comes out, don't hold your breath.
Senators Blanche Lincoln of the Senate Agriculture Committee and ranking member Saxby Chambliss have stated regarding the problem of service contract holders not having their contracts honored "These contracts are supposed to ensure that the carriers will provide the necessary weekly equipment and vessel space and the rate will be fixed, unfortunately it has come to our attention that carriers are now routinely failing to honor these contracts."
The two Senators asked the FMC to provide information on what authorities it may have or should have to ensure that these contracts are honored. "Including the ability to penalize carriers for egregious practices." Wow, let's see if the current mood of Washington which is that of punishing any Company that dares to make a profit carriers over to this issue. We shall see.
In the meantime MSC, MAERSK and CMA/CGM, the three largest ocean Carriers in the world have teamed up to jointly operate a transpacific loop starting July 10th. The service called EAGLE by MSC and YANG TSE by CMA will cover just Shanghai, Xiamen, Qingdao, Hong Kong, Kaohsiung with Long Beach.
This will help alleviate a lot of pressure in this very busy loop in the Pacific Rim.
Devin T. Burke, CEO
Universal Cargo Management, Inc.
www.universalcargo.com