JULY 2016: Ocean Freight Market Updates (Asia – USA Trade Lanes)

The last few quarters were very bad for carriers financially. Q2 is expected to be even worse with industry analysts forecasting over $6 billion in total losses for 2016.

In an attempt to drive up prices and stem this long period of industry-wide decline, carriers have begun to reduce their total container carrying capacity.

In summary: carriers’ reduction of total container space + a rising demand for shipping services = higher container costs.

Below, you will find:

  • The announced General Rate Increase (GRI) and Peak Season Surcharge (PSS)
  • High level ocean freight market analysis
  • Recommended steps

 

GENERAL RATE INCREASE & PEAK SEASON SURCHARGE

The following rate increases are scheduled to take effect in July for cargo moving from Asia into all U.S. Ports:

Announced for July 2016 and August 2016 (in $USD)

DATE 20’ 40’ 40HQ 45’
General Rate Increase Jul 1, 2016 $540 $600 $600 $760
Peak Season Surcharge Jul 15, 2016 $320 $400 $450 $506
General Rate Increase Aug 1, 2016 $900 $1000 $1125 $1265

OCEAN FREIGHT MARKET ANALYSIS: JULY 2016

Our pricing team continuously monitors the status of proposed rate hikes to ensure that we are able to mitigate increases as quickly as the market conditions allows.

To better understand these rate increases, here are the key market factors at play:

  • Stormy financial waters for carriers
    • To stem the tidal wave of financial losses (forecasted to exceed $6 billion) carriers are trying to increase rates.
    • The July increase appears to be the first rate increase to “stick” in the pricing game between the carriers
    • For more context, read our game theory analysis of ocean carrier competition
  • Carriers are actively reducing supply (to drive up demand):
    • Cancellation of services – CMA-CGM the world’s third largest ocean freight carrier recently announced the cancellation of their “Taiwan Strait” service between South China and the US East Coast
    • Merger of sailing schedules – CMA-CGM merged their “Yellow Star” and “Bohai” services between China, Southeast Asia and the US West Coast
    • Blank sailingscarriers (including the G6 alliance) had a few “blank sailings” – basically cancelling a ship or port of call on a given route to further reduce capacity for Transpacific trade
    • Ripple effects on alliances – UASC and CSCL (CMA’s alliance partners) as well as all other carriers buying slots on these vessels will also be affected by this change

 

What do these carrier updates and changes in the market ultimately mean for you?

Delays. When ships are full, containers are rolled to subsequent sailings, which are likely to also be overbooked.
Increased costs. Container slots go to highest bidder — it’s as simple as that — be prepared to pay more to keep your supply chain full (even if you have a contract!).
Inflexibility. When this space reduction is compounded with the normal volume increase of the “peak season” months of July-November, it will become extremely difficult to reserve last-minute space on ships.

 

RECOMMENDED STEPS

  • Plan ahead! – Make bookings as far ahead as possible and at a minimum of 2.5 weeks ahead of your desired sailing date. Carriers expect an accurate booking forecast at least 14 days prior to vessel departure.
  • Communicate Work closely with your vendors and ensure that they can meet the deadlines. When space is tight, carriers will put you at the end of the line, if you cancel bookings.
  • Lean on Flexport – Your dedicated Flexport Team will keep you abreast of shipment status and update any changes at origin, empowering you to make real-time business decisions to manage your supply chain.

Following this protocol will go a long way to facilitate your shipments with minimal disruption and to the greatest extent possible, avoid delays at origin due to space issues.

If you have any questions, please feel free to contact [email protected] (Flexport’s Director of Pricing & Procurement) or your Logistics Manager & Account Executive.

Thank you for shipping with Flexport!

What Importers Should Know for Chinese New Year 2016

2016’s Chinese New Year will last from February 7th to February 13th. It’s also known as the Lunar New Year or Spring Festival, and it’s the biggest Chinese celebration of the year.

This is an important event for importing companies to know. Your supply chain may be disrupted for a significant period of that time.

Factories will be closed for the entire week. Keep in mind that the majority of Chinese laborers have jobs that are far from their hometowns; their return to family is one of the largest migration events every year. Businesses typically allow workers to start packing up as much as two weeks before the celebration. They’ll also take a week or more to return. All in all, factories may not resume production by the third week of February. That may take you to almost four week’s disruption, compounded with delays in transportation.

Here’s another issue: Even after factories re-open, it will take a while for them to return to production at full capacity. That’s because up to a third of employees never return to work. The inexperience from new workers can cause longer delays and lower product quality.

A top-tier supply is likely to have all these issues worked out or at least mitigated. So not the entire manufacturing sector is going to be affected in the same way, but you should be aware of these general effects.

What can you do to plan ahead?

Because of record low ocean rates, ocean carriers are planning capacity reductions for Chinese New Year. Some report that they’ll reduce capacity by up to 40%

That could be an issue if you don’t have protected space. Carriers and Freight Forwarders have an allocation based system which rewards shippers who consistently move freight throughout the year. If you’re not moving freight regularly, it may be a challenge to find space.

How can you avoid this challenge?

Plan ahead and work closely with your freight forwarder. Your forwarder can work with carrier partners to protect allocations or might be able to get space from another carrier. Forwarders may also have the chance to get allocation space from another shipper.

You should also plan to order at least three weeks prior to Chinese New Year. If you do, containers should be at the port by the second week of January.

Finally, consider shipping by air if you have a strict deadline from a retailer or are running out of stock. Paying for stock expensively might be better than having no stock at all. Don’t leave that decision for the last minute: flights just before Chinese New Year are often overbooked and carry a higher premium . Consider non-direct flight options and makes sure that your connection is outside of China.

Price increases during Chinese New Year

Seafreight and airfreight costs will increase before Chinese New Year. Carriers get overbooked earlier than usual. Be warned that even if you get a booking confirmation, your containers may still get rolled to the next available sailing. Carriers are especially eager to increase rates at this time.

Ocean carriers have already announced a Far East Asia to United States and Canada General Rate Increase (GRI) effective as of January 1st, 2016. Rates are meant to be as high as these levels:

Imports to the East Coast of the United States and Canada: US$1600 per 40’ container.

Imports to the West Coast of the United States and Canada: US$1200 per 40’ container.

Carriers have also announced a Peak Season Surcharge for all dry cargo in this tradelane. A US$400 surcharge per 40’ container will be effective as of January 15th, 2016. Furthermore, carriers have announced a $600 surcharge effective as of February 1st, 2016.

These are pretty high announced rate increases! But just because carriers have announced them doesn’t mean that they’ll be exactly this high. In the current market, it’s possible that the GRIs will be mitigated. The Peak Season Surcharge, though, is more likely to stick.

***

Don’t wait until the last minute. If you can manage it, place your orders now and avoid unnecessary delays next month.

Update, 1.21:

Ocean carriers successfully implemented a General Rate Increase (GRI from Far East Asia to United States and) effective as of January 1st, 2016.

Here’s data from the Shanghai Containerized Freight Index:

Dec 2015-Jan 2016, rates per 40’

12/25/15 1/1/16 1/8/16 1/15/16
USWC $766.00 $1,519.00 $1,498.00 $1,417.00
USEC $1,448.00 $2,555.00 $2,542.00 $2,457.00

USWC = United States West Coast Ports

USEC = United States East Coast Ports

The Jan. 15th Peak Season Surcharge (PSS) was postponed to February 1st. Rates are expected to drop between now and February 1st.

It remains to been seen if February 1st increases will stick or not, we will update you as soon updates are available in the market.

By Nerijus Poskus, logistics manager at Flexport.

Come see Flexport’s shipping container at CES 2016!

CES-2016-Flexport-Booth

90% of everything you see around you has been carried inside a shipping container like this one. And Flexport is bringing our own shipping container to Las Vegas!

We are very excited about showing some of our coolest clients and their featured products.

Bellabeat – as featured on Forbes, TechCrunch, Wall Street Journal, WIRED.

Nod – as featured on BBC, TechCrunch, TIME.com, WIRED.

Osmo – as featured on Bloomberg Business, Forbes, NBC, Wall Street Journal.

Electric Objects – as featured on Bloomberg Business, Forbes, the New York Times, TIME.com.

Ring – as featured on FORTUNE, Mashable, TechCrunch, Wall Street Journal.

 

Flexport-Clients-CES-2016


Looking to chat with someone on our team at CES 2016?

We’d be happy to connect at [email protected]!

Looking to learn more cool facts about shipping?

Check out www.flexport.com/blog

Should I ship by LCL or FCL?

Should I ship my freight with FCL (full container load) or LCL (less than container load)? We lay out the different variables to consider in this post to help you make your decision.

LCL lets you keep inventory low

If you don’t have the money or space to accommodate a full container at your warehouse, it makes sense to use LCL. LCL lets you ship in smaller volumes so that you can keep your inventory lean. Instead of purchasing large quantities from suppliers, you can use LCL to keep a steady flow of inventory in smaller quantities. That frees up cash flow for other purchases.

FCL is cheaper than LCL

LCL costs more than FCL per unit of freight. That’s because freight agents prefer a full container load rather than to figure out how to bundle many LCL shipments in a full container. In addition, many importing fees are fixed, which means that you have to pay them regardless of how large your container is.

FCL gets delivered more quickly than LCL

When an FCL shipment arrives at port, it’s unloaded from the vessel and delivered to the buyer. It’s more complicated for LCL: someone has to consolidate different shipments, process multiple documents per container, and then sort goods for each customer. Every point could be delayed. At origin, the cargo has to be grouped together to fill a container. At destination, there’s a greater risk of examination by customs: When one shipment in a container gets flagged, every shipment has to be checked. That can cause delays of days.

LCL increases risk of damaged goods

If you ship LCL, you have no control over the cargo that will be loaded in the same container as your goods. There could be more dangerous objects traveling in the same container, like liquids, heavy weights, smelly objects, etc. Instead of knowing exactly what’s going into a container, you have to prepare for the risk that your shipment will be damaged. In addition, given the additional complexity of going to multiple places, there’s a greater risk that your cargo gets misplaced or lost.

***

If you’re able to structure shipments together into an FCL without having too high of inventory costs, it probably makes more sense to ship FCL.

By Brandon Kronitz, operations associate at Flexport.

Ocean Freight Prices Out of China are Collapsing

Ocean Freight Price Index

 

The Shanghai Container Freight Price Index is collapsing to historical lows amid a worldwide container shipping capacity glut, with no signs of abating any time soon. This is great news for companies moving international ocean freight. If your freight forwarder has not reduced your container prices in the last few months, come talk to us. We are passing these savings straight through to our customers.