Trans-Pacific Freight Rates Drop

Trans-Pacific freight rates, particularly from China to the U.S. West Coast (USWC), fell significantly this week. In fact, some reports show China to USWC freight rates dropped by about a third of the price per forty-foot equivalent unit (FEU).

Freight rates previously surged after the Trump Administration made a deal with China where both countries dropped tariffs on goods from each other by more than 100% for a 90-day negotiation period. That deal happened a little more than a month ago.

Seeing a window with tariffs at 30% instead of 145% on goods from China, importers took advantage. Ocean freight carriers were able to capitalize on the increase in demand with general rate increases (GRIs) and early peak season surcharges (PSS). At the same time, seemingly expecting the demand increase to last longer, carriers increased capacity (supply) on trans-Pacific shipping lanes. However, shipping demand dropped sooner than expected to create this week’s freight rate fall.

Another factor likely adding to the freight rate drop is the reportedly easing of congestion that’s been happening at some major ports in China. Reduced congestion frees up cargo ships, giving another boost to capacity/supply.

It doesn’t take an economics degree to recognize the combination of higher supply and lower demand means lower prices. Ocean freight shipping is not immune to the basic laws of supply and demand. That we’re seeing downward pressure on freight rates coincide with massively reduced tariffs on goods from China makes this a prime moment for U.S. shippers who import from the China.

Freight Rate Numbers and Trend

Here’s a little data on the freight rate fall Bill Mongelluzzo reported in a Journal of Commerce (JOC) article:

Rates to the West Coast were at $3,500 per FEU as of June 17, down 32% in just one week, according to Platts, a sister company of the Journal of Commerce within S&P Global. East Coast rates of $6,500 were 11% lower on the week

Let’s expand our look at what’s happening with freight rates to multiple sources. It’s always nice to get freight rate comparisons from various indexes. While each global freight rate index measures with different data points and metrics (some, for example, include carrier fees that others don’t or pull averages from different lists of carriers or services than others), freight rate trends across indexes tend to be evident.

Looking closer at when freight rate index data is released, the falling freight rates we’re seeing this week is a continuation of falling freight weeks that was already happening last week.

For some indices, this week’s data won’t be released until tomorrow. The data from Platts, on which Mongelluzzo reported, was as of Tuesday, quite early in the week. The Shanghai Containerized Freight Index’s (SCFI) most recent data drop was last Friday (the 13th), and showed a week-on-week drop not too far off what Platts showed four days later:

SCFI reported Shanghai to Los Angeles freight rates fell by $1,486 per FEU to $4,120 per FEU. That’s a 27% decrease from the previous week.

Getting the most recent data on freight changes, we can jump over to one of the biggest freight rate index sources in the world: Drewry. Just today Drewry published its weekly Drewry World Container Index, along with the more specific data sets for Shanghai to Los Angeles and New York (so we can see that China-USEC data as well):

• The composite Drewry World Container Index showed a 7% drop to $3,279 per FEU this week.
• Freight rates from Shanghai to New York fell 10% to $6,584 per FEU.
• Ocean freight rates from Shanghai to Los Angeles plummeted 20% this week.

Here’s a nice little table of the various data points showing the latest freight rate changes we covered in today’s blog post:

Always be careful not to directly compare freight rates in one index with the freight rates listed in another because, as mentioned above, they don’t use the same data metrics as each other. For example, comparing Drewry’s freight rate average of Shanghai to Los Angeles with Platts’s trans-Pacific freight rates to the USWC could make it look like freight rates increased by $1,202 or 27% over the last couple days. That would be false. Even comparing the more similar seeming Shanghai to Los Angeles freight rate numbers from the SCFI to Drewry would create incorrect data and conclusions.

Rather, the things to look for are comparisons within each index comparing its data to its own previous data. Then you can look across indexes for trends. No matter the index above, freight rates are falling at the moment.

Will Rates Surge Back Up for the Peak Season?

There’s some debate about how long the falling freight rates will last. Some think there will be another big freight rate surge when Presidents Trump and Xi sign a trade deal between the U.S. and China. President Trump has announced such a deal is done, just awaiting approval and signatures. That doesn’t necessarily mean the deal will be finalized this month or even next, but it could happen at any time (or fall apart with some conflict). If those who think freight rates will surge with the deal are correct, it’s quite possible these low freight rates we’re seeing now could be very fleeting indeed.

Others think the surge that happened when the U.S. and China reduced tariffs was it for the shipping boom this year, and it’s all over now for 2025. This view seems a bit too pessimistic on demand to me, with the big months of the peak season still on the way. And I think it underestimates carriers’ ability to reduce capacity when demand drops below their expectations as well as their ability impose GRIs and PSS.

On the other hand, there are those who were too optimistic on demand, seeing the demand and freight rate surge after the tariff drop as the international shipping’s peak season getting an early start that would carry through its central months of August to October. A strong peak season can start early in July, June, even May and/or continue strong through November before surging air freight for last-minute Christmas goods. However, the falling demand and freight rates of the moment show we’re not already in an overly long peak season extending from May to October.

That doesn’t mean there will be no peak season, as the overly pessimistic outlook on the shipping industry’s second half of the year indicates.

There’s another group that sits between the pessimistic and optimistic views. They think the peak season will be dampened because many shippers stocked up early, getting as much importing done and they could before tariff hikes hit, including but not limited to the “Liberation Day” reciprocal tariffs. That very well could be the case.

I expect the voices saying there’ll be no peak season this year to get louder in the next two to three weeks while those who think we’ll have a peak season but dampened a bit by early importing and stocking to be more on the mark. Who knows, if a bunch of trade deals like the one President Trump just signed with the UK roll in, creating shipping confidence with as much stability and predictability as the volatile world of international shipping can have, 2025 could have a strong peak season. Whether dampened or strong, I wouldn’t be surprised to write another Yes, Virginia, There Is a Peak Season post this year like I did back in 2023.