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August 20 2018

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6 The Journal of Commerce | August 20 2018 Spotlight cap Elevated eastbound spot rates and carriers' levy of heavy general rate increases (GRIs) reflect carriers' discipline in holding shippers to the limits of the minimum quantity commitments (MQCs), setting the stage for even more rolled cargo as the temptation builds to prioritize better-paying spot cargo over contracted volume. Eastbound trans- Pacific spot rates broke through the psychological barrier of more than $2,000 per FEU to the West Coast and $3,000 to the East Coast in the week ending Aug. 4, according to the Shanghai Containerized Freight Index. Emboldened by the higher-than-usual rates and signs of strong demand, carriers are pushing for hey spot rate increases of $600 to as much as $1,000 per FEU in August and September, especially to the East Coast. While it is not possible to quantify how much of July's increase in cargo volume was a move by beneficial cargo owners (BCOs) to get ahead of the Trump administration's import tariffs on some imports of Chinese merchandise, terminal operators say July was a busy month. Some GRI increases the past month reflected emergency fuel surcharges, as carriers reacted to a 53 percent increase in bunker fuel prices since last summer. However, the surcharges have been applied unevenly. "We pay no emergency bunker fuel surcharges," said the vice president of transportation at an importer of home improvement products who ships only under contract and avoids the spot market. "Some carriers are pushing for the emergency surcharges, some are not," a coffee importer said in reference to spot market shipments. Container shipping profits snagged Maersk Group's downgrading of its 2018 earnings forecast is the latest sign of the darkening broader outlook for the container shipping industry, because of lower-than-expected freight rates, higher bunker prices, and escalating tit-for-tat tariffs. Maersk said on Aug. 7 that it was lowering expectations for earnings before interest, tax, depreciation and amortization (EBITA) from a range of $3.5 billion to $4.5 billion; its initial estimate of EBITA was $4 billion to $5 billion. Maersk said it still expects a 2018 profit, though it didn't note whether it expects it to exceed its 2017 profit of $356 million. "We delivered good progress in Q2 on revenue, volumes, and unit cost across our business, and results improved from a weak Q1," CEO Soren Skou said in a statement. "However, we continue to encounter very high bunker prices, which we have not been able to get fully compensated for in freight rates, leading to an adjustment in our expectations for the full-year 2018." Maersk said average bunker prices were up 28 percent year over year in the second quarter, while average freight rates were 1.2 percent lower. The average cost of bunker fuel in the month of July across the ports of Rotterdam, Shanghai, and New York- New Jersey was $454.42 per metric ton, which is up 51.6 percent from July 2017, according to IHS Markit data. Maersk's downgrade comes after OOCL on Monday reported a $10.3 million loss in the first half, down from a $53.6 million Trans-Pac carriers flex peak-season power

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