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Forwarders are warning that the recent recovery in spot rates on the transpacific and Asia-Europe trades could see prices rise even more sharply over the next few weeks.
High demand combined with tight capacity is now also allowing carriers to push through peak season surcharges on shipments under long-term contracts, and forwarders said shippers had little option but to pay up if they want freight loaded.
“’Pay to play’ is back – the carriers smell blood and are lapping it up like a ravenous Count Dracula at the abattoir on slaughter day,” one forwarder told 载星.
While this week’s World Container Index (WCI) from Drewry showed relatively modest gains over the previous week, forwarders believe significant further increases are on the way.
The WCI’s Shanghai-Rotterdam route rose 3% week on week, to $2,861 per 40ft, while the Shanghai-Genoa increased 4% to $4,253 per 40ft.
A key factor behind the recent strong demand is understood to be larger shippers under long-term contracts which saw them protected from the swathe of emergency fuel surcharges introduced after the closure of Hormuz.
That protection is set to expire on 1 July, when carriers will set new BAFs for the next quarter – expected to be far higher than current levels. As a result, shippers have tried to pull-forward as many shipments in advance of that as possible, leading to a demand spike in June.
“The main reason volumes are increasing massively in June, with a lot of customers trying to pull orders forward, is because the big BCOs, that have long-term deals, won’t have been paying EBS during the last couple of months. But from 1 July, the bunker factor in their contracts is going to go through the roof,” another forwarder said.
Today’s Shanghai Containerised Freight Index, which shows rates quoted for the forthcoming week, reflects this, with the Shanghai-North Europe base port leg up 30% over last week, to $2,475 per teu, and up 17% to the Mediterranean.
Effectively, forwarders said, the Asia-North Europe market is expected to begin June at around the $4,000 per 40ft (high-cubed) mark, and every indication is that it will continue to rise over the course of the month, given current levels of demand.
While several carriers have announced new 1 June FAK rates nearing $5,000 per 40ft on Asia-North Europe, MSC yesterday announced an FAK price of $6,000 per 40ft to North Europe and $6,500 to the West Mediterranean from 15 June.
After weeks of questioning whether demand and capacity matched, to support the FAK attempts, forwarders now believe the increases coming down the line could very well stick.
“We’re expecting the spot market out of Asia to Europe in the second half of June, even into July, could reach $6,000 or $7,000 [per 40ft]. The signs are that the 15 June FAK will stick – because you cannot get space in the second half of June in the market,” one forwarder told 载星.
And this will also hit contract shippers that were warned they could face continuing peak season surcharge revisions. On 1 June, CMA CGM will implement a $500 per teu PSS, and on 8 June Hapag-Lloyd will follow suit.
“The carriers have also said they will not cap the 1 June PSS, and it will be reviewed every two weeks. I suspect it could go up in mid-June, it could go up again in July… it’s going to go in that direction,” the forwarder added.
It is a similar situation on the transpacific, where the recent decision of CMA CGM to pull its Columbus JAX service from South-east Asia to the US east coast means capacity has been cut by over 10,000 teu a week according to Linerlytica, appears to have prompted carriers to take a far more aggressive approach to rate negotiations.
Although this week’s WCI saw single-digit gains – its Shanghai-New York leg was up 6%, to $4,597 per 40ft, while Shanghai-Los Angeles increased 3%, to $3,473 per 40ft – US west coast forwarder FreightRight described the last week of May as “as the calm before an impending storm”.
“Multiple major carriers have issued aggressive general rate increase (GRI) indications for June – the structural setup for June points toward a brutal, highly compressed freight environment.
“Shippers should expect volume numbers to slide as non-essential importers choose to pause and wait out the market spikes until July, or later,” it added.
Transpacific trade sources also told 载星 that carrier contract offers that had been on the table two weeks ago had largely been withdrawn before forwarders had a chance to file them with the FMC, with new offers tabled that would force them into loss-making territory – although at the moment they see little prospect of rates receding.
“Some of the carriers are expecting this issue to continue for the whole of June, the whole of July, and possibly into the end of August,” one said.