Trans-Pacific Freight Rates
Ocean carriers reduced space from Asia to the U.S. during the summer. Three weekly sailings to the West Coast and one to the East Coast were suspended. (Carriers are granted anti-trust immunity permitting them to collaborate on rates and space). The effect was to substantially reduce available space and drive up rates. Spot rates have been experienced an unusually long high this summer and autumn. The West Coast rate in mid-October was 77 percent higher than the same week in 2017. Freight rates in the Trans-Pacific trade lane reached a five-year high last week.
The peak-shipping season usually ends by early November, however, the current market is not following normal seasonal trends. In addition to carrier space manipulation importers are also moving up their shipping schedules in advance of another wave import duty increases.
Tariffs on many Chinese products are scheduled to increase from 10 percent to 25 percent on January 1st. Most US importers will try to arrange as many of these products as possible to arrive before the end of the year to avoid a substantial increase in duty even though shipping costs will be high. This pressure ensures that ocean space will remain tight and spot rates will remain high through the end of the year. In fact, importers are also bracing for the possibility of a general rate increase (GRI) on ocean cargo.
Due to the limited space, high rates, and the duty increase deadline some typically ocean-borne cargo is moving by air. This increase in air demand coupled with the normal holiday season demands and the substantial increase in China’s e-commerce traffic is also affecting air freight space and prices which are running higher than last year.
The presidents of the United States and China are scheduled to meet at the end of November or early December. Even if some change is made in the additional duty rates expected for January 1 is announced at the conclusion of a meeting of these leaders it is likely to be too late to actually impact the current demand for space before mid-December.
For more information please contact your Krieger Worldwide representative.