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November 26 2018

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16 The Journal of Commerce | November 26 2018 www.joc.com International Maritime WITH EASTBOUND TRANS-PACIFIC spot rates hitting new highs and space still tight deep into the year, US importers should expect upward pricing pressure at least through the end of the year, with just three weeks before goods need to be on the water to beat higher tariffs scheduled to take effect on Jan 1. To avoid the increasing tariffs — from 10 percent to 25 percent — on many goods, shipments from mainland China must be loaded by mid-December at the latest for West Coast routing and by late November if they are bound for the East Coast. As of mid-November, eastbound trans-Pacific spot rates were at five- year highs of above $2,500 per FEU, and over $3,600 per FEU to the East Coast, according to the Shanghai Containerized Freight Index. Some are predicting a continua- tion of peak-season-like conditions not just through the end of the year but continuing until the Chinese New Year holiday beginning in early February as shippers seek to get goods moving prior to the typical two-week shutdown of Chinese factories. Chinese New Year falls on Feb. 5, 2019, and the festival period will extend 15 days to Feb. 19. There will be "a spike in contain- er volume before Chinese New Year, so it will go on as it is in terms of [a continuation of the] peak season," Hubert Wiesenmaier, executive director of the American Import Shippers Association, told The Jour- nal of Commerce. "Peak season brings with it all sorts of surcharges, start- ing with a peak-season surcharge [and] enhanced service surcharges on certain routes to get bookings confirmed ... on the ships, [to get] equipment when you need it, [and to] discharge within a shorter period of time. So, January will certainly be rough for our type of importer [and] for most apparel importers." Beyond that, the strength of post-holiday restocking and how effectively carriers manage ocean ca- pacity in the expected lull following Chinese New Year will determine the extent of anticipated first-quar- ter weakness in spot rates. Heading into annual service contract talks, shippers often use post-Lunar New Year spot rates as a barometer of how well capacity will be managed. "Importers continue to pump in cargo. They have to land it before Jan. 1," said Ernie Kuo, senior vice president of Pacific International Lines (PIL) Agency Services, a niche carrier. Kuo said a number of carri- ers, including PIL, have made ad-hoc capacity increases in the form of extra-loader vessels, but they have not been able to keep up with the unexpected demand for this time of year. "It's all about supply and demand," he said. Supply-demand factor "Trans-Pacific vessel supply-de- mand is the single biggest factor to weigh," Matson stated during a Nov. 5 earnings call. Matson's China-Long Beach Express service was able to realize a "sizable rate premium" because of strong market demand in the third quarter, and that demand is expected to remain strong into the fourth quarter, the carrier stated. Although West Coast services ex- perienced the sharpest rate increases in October, the action appears to have shifted to the East Coast. "Ships are still full and will continue to be full -80% -60% -40% -20% 0% 20% 40% 60% 80% 100% 120% Week 1 Week 4 Week 7 Week 10 Week 13 Week 16 Week 19 Week 22 Week 25 Week 28 Week 31 Week 34 Week 37 Week 40 Week 43 Week 46 Week 49 Week 52 2014 2015 2016 2017 2018 Growth in trans-Pac spot rates defies seasonality, mirrors post-Hanjin Source: IHS Markit © 2018 IHS Markit Year-over-year change in SCFI spot rates per FEU to US West Coast Hanjin bankruptcy Current week Plans for 25% tariffs announced Down to the wire Tariff worries keep shippers on edge as they try to beat the clock on shipments By Bill Mongelluzzo Importing & Exporting | Ports | Carriers | Breakbulk | Global Logistics

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