Cyclone, Port Disruption, Falling Freight Rates, & Blank Sailings, Oh My

A cyclone shut down operations at ports and airports in Southern China and Hong Kong the last couple days, likely causing up to a week (in some cases possibly more) in delays for shippers importing from the region. Super Typhoon Ragasa made landfall yesterday in the Guangdong province, after already causing damage with its outer band in Taiwan.

In a WorldCargo News article, Jasmina Ovcina Mandra reported the following about Super Typhoon Ragasa halting Hong Kong and Southern China ports:

In anticipation of the storm, port authorities in Guangdong province preemptively closed Yantian, Nansha, and Shekou on September 22, along with Chiwan, Mawan, and Dachan Bay, according to market sources cited by S&P Global. Inchcape confirmed that Hong Kong’s container terminals halted operations on September 23 as the city braced for hurricane-force winds and heavy rainfall. Oil terminal cargo operations, and pilotage and bunkering services remained suspended on September 24, according to GAC Hong Kong.

Hutchison Ports Hongkong International Terminals (HIT) said it resumed normal operations at 08:00 on September 25 after enacting its typhoon protocol, which included securing yard equipment, lashing containers and keeping safety crews on round-the-clock watch. The terminal operator credited these measures with enabling a swift return to berthing, truck movements and container handling following the storm. The terminal operator did not report any damage to its facilities as a result of the storm.

Ports reopened today, but there are always challenges after closures, disrupting cargo flow and slowing supply chains. This event is no different and even has an aggravating factor, as Keith Wallis points out in a Journal of Commerce (JOC) article:

… supply chains in a region stretching between South China, Taiwan and the Philippines face extensive disruption even after terminals reopen and flights resume. The turmoil comes ahead of China’s National Day holiday that starts Oct. 1.

…

Hapag-Lloyd, in an advisory Wednesday, warned of lengthy berthing delays at key ports in South China. Cathay Pacific Airways, Hong Kong’s dominant air cargo airline, said it would take some time for flights to return to normal.

At Shenzhen’s Yantian terminal, which handles about a quarter of China’s exports to the US, Hapag-Lloyd forecast berthing delays of five to seven days after the facility reopens. The carrier said it expected a four- to five-day delay at Shekou, three to four days at Nansha, Guangzhou’s main export port; about three days in Hong Kong and delays of two days in both Kaohsiung and Keelung in Taiwan.

Port closures began early on Monday with reopenings not happening until Thursday morning. Airport closures also impacted the movement of cargo. In his JOC article, Wallis cited the Airport Authority of Hong Kong with saying 100 cargo flights would be cancelled during the Ragasa closure. With this happening in the lead-up to a holiday in China that closes down factories and when there tends to be a surge to get goods to the ports before that holiday happens, the timing seems really bad.

However, there’s also a mitigating factor on the timing.

The volume of cargo movement is lower right now than what would normally be expected, particularly for what is typically part of the peak season for international shipping. This demand decrease is largely due to tariffs and a great deal of early shipping that businesses did to get ahead of the Trump Administration reciprocal tariffs/tariff hikes.

Freight rates on the spot market have been falling with the decreased demand from more typical seasonal expectations. Freight rates are falling so much so, ocean freight carriers are cutting capacity with blank (cancelled) sailings.

Bill Mongelluzzo wrote in a JOC article published today:

Trans-Pacific container lines will accelerate blank sailings over the next four weeks in an effort to stabilize spot rates that are continuing to fall amid an unusually soft pre-Golden Week market.

The reduction in planned capacity for October has increased from 3.8% to 13.6% on the Asia-North America West Coast trade and from 4.8% to 14.4% on the Asia to East Coast lane, Alan Murphy, CEO of Sea-Intelligence Maritime Analysis, said in this week’s Sunday Spotlight newsletter.

That comes as spot rates to the West Coast have fallen 30% over the past three weeks, with East Coast prices down almost 20%.

Mongelluzzo quotes a logistics consultant as saying the blank sailings won’t raise freight rates, just prevent a continued free-fall. On the other hand, port disruption like we’re seeing at Southern China and Hong Kong ports right now usually puts upward pressure on freight rates. It’s possible the combination of the capacity decrease with the port disruption could be enough to create some freight rate increase.

However, the current behavior of freight rates is still a downward trend. Even heavily so, if you keep reading Mongelluzzo’s article:

Spot rates from Asia to the West Coast had fallen to $1,400 per FEU as of Sept. 24, down from $2,025 on Sept. 5, according to Platts, a sister company of the Journal of Commerce within S&P Global. East Coast rates of $2,433 per FEU are down from $3,000 on Sept. 5.

Forwarders this week said some larger carriers have already begun to undercut those rates. One forwarder told the Journal of Commerce some larger lines are offering $1,350 per FEU to the West Coast and sub-$2,400 per FEU to the East Coast.

“Are we getting near the bottom? I would think so,” the source said, adding those rates have been extended through Oct. 14.

“How much lower can they go? They’ve been going down on almost a daily basis,” said Chris Sur, executive vice president of ocean freight logistics at Unique Logistics International.

Those low and fast falling freight rates are hitting territory that makes carriers get nervous about profitability. Thus, the moves toward blank sailings. Carrier will also likely look to use general rate increases (GRIs) and peak season surcharges (PSS) to bring freight rates up. However, when demand is down and other carriers undercut rates, it’s hard for carriers to implement and sustain charges to increase freight rates.

For shippers looking at higher tariff costs, supposing the types of Incoterm deals they use lay the tariff costs on them, lower freight rates mitigate, or in some cases neutralize, that cost increase for the moment.