Issue link: https://jocdigital.uberflip.com/i/724533
22 THE JOURNAL OF COMMERCE www.joc.com SEPTEMBER 19.2016 CONTAINER SHIPPING SPECIAL REPORT Others agree. "The complete halt in Hanjin Shipping's operations is expected to cause serious capacity issues in the mar- ket. In light of this, we anticipate a strong general rate increase as of Sept. 1, 2016, and continued rate increases for the remainder of 2016," OEC, another larger trans-Pacific NVO, said in an Aug. 31 customer advisory. Part of what is giving carriers con- fidence is an already-tight trans-Pacific market. For the week of Aug. 14, vessel utilization rates on the busy Asia-to-Los Angeles-Long Beach trade lane averaged 98.6 percent, according to the Transpa - cific Stabilization Agreement, a discussion agreement of most of the carriers in the trade. Utilization rates to the Pacific North- west ports averaged 92.9 percent. On all-water services from Asia to the East Coast, utilization rates via the Suez Canal averaged 97.6 percent, and 93.8 percent via the Panama Canal. The evidence for the tightness is clear from recent trends on the spot market: Spot rates to the U.S. West Coast have climbed from $753 per FEU in late June to $1,746 in the latest SCFI reading. Following the Hanjin collapse, the Drewry Shipping Consultants' rate assess- ment increased 42 percent to $1,674 per FEU on the Shanghai-Los Angeles route and by 19 percent to $2,151 on the Shanghai- New York route. Vessel space in the eastbound Pacific could be tighter through January than in recent years because Chinese New Year, when factories in Asia shut down for a week or two, will be earlier than usual in 2017. Vessel capacity could be especially tight through the peak shipping season into early November, given the confluence of events. Shipments likely will drop off somewhat from early November to early December in the normal post-peak-season lull. Hanjin was carrying approximately 10,500 to 12,000 FEUs a week in the east- bound trans-Pacific, all of which must find another home. Fellow South Korean car- rier Hyundai Merchant Marine deployed 13 additional ships to handle the orphaned cargo, and other carriers, including 2M Alliance partners Maersk Line and Medi- terranean Shipping Co., and CMA CGM, which has just completed its takeover of NOL, have advised customers of added capacity. "We're already seeing indications that carriers are going to do extra-loaders," ships deployed in addition to scheduled services, McElroy said, "Anyone who has access to available tonnage is undoubtedly going to evaluate the merits of extra loaders." How the spot market plays out will depend on how quickly it adjusts to the shock of the sudden withdrawal of the Hanjin capacity. There is no shortage of idle capacity that could fill the void quickly. Maritime analyst Alphaliner reported in late August that more than 1 million TEUs was idle and extra-loaders are expected in coming weeks. With rates at higher levels, carriers can be expected to move quickly to get higher-valued cargo onto their ships. This is especially so given the historically rock- bottom rates, some as low as $700 per FEU, that cargo under annual service contracts is moving under. Shippers already are knocking on the doors of NVOs such as APEX seeking extra capacity, McElroy said. Given the low ser- vice contract rates, carriers are likely to enforce limits on minimum quantity com- mitments, as they typically do in periods of high demand, he said. If a shipper has a 1,000-FEU MQC contract, for example, a carrier will allow only about 20 containers a week to be shipped at the contract rates, and will demand higher rates more aligned with current spot rates for any incremental volumes a BCO may need to ship. The fate of the Oct. 1, $1,000 GRI is more difficult to determine. If the Sept. 1 GRI and Sept. 15 PSS were to hold and then the Oct. 1 GRI was slapped on top of that, West Coast rates would stand at $3,400 per FEU, a huge increase versus current levels and a significant upward shift in the rate struc- ture. Would the Hanjin withdrawal and the peak season be enough to support those rates? Even if they weren't, the current September increases look favorable, at least for carriers. "I definitely think a $2,400 rate is quite feasible for September, given the situ- ation," McElroy said. "Come Oct. 1, it is going to look different. There could be a decline in volumes coming and capacity coming in, possibly through taking idle tonnage for the displaced Hanjin tonnage. But right now, I think that September is definitely going to see higher rates and (the carriers will) keep those rate levels at least through September and well into October as well." JOC Contact Peter Tirschwell at peter.tirschwell@ihsmarkit. com and follow him on Twitter: @petertirschwell. Source: Transpacific Stabilization Agreement TRANS-PACIFIC VESSEL UTILIZATION RATES 92% 94% 96% 90% 98% 100% Shanghai to East Coast Shanghai to West Coast ● Pacific Southwest ● East Coast Suez ● Pacific Northwest ● East Coast Panama Shanghai to East Coast Week of July 17 Week of July 24 Week of July 31 Week of August 7 Week of August 14 Source: Shanghai Shipping Exchange EASTBOUND TRANS-PACIFIC SPOT RATES $500 $1,000 $1,500 $2,000 $2,500 $3,000 Shanghai to East Coast Shanghai to West Coast S A J J M A M F JAN 2016 D N O S ● Shanghai to West Coast ● Shanghai to East Coast Shanghai to East Coast