North American container rate increases falter on mixed demand, risk of strike

North American shipping carriers are wrestling to implement rate increases amid an opaque market driven by fear an International Longshoremen's Association strike could disrupt supply chains, market sources said.

During mid-August, mixed signals relating to the market's acceptance of the General Rate Increase (GRI) have made it difficult to judge where North American container rates are headed, participants have said. The proposed GRI is for $1,000/FEU for the East Coast and $500/FEU for the West Coast.

"I've been thinking for the past couple of days, and it seems that carriers are not wanting to budge on the GRI," a North American logistics source stated. "There's not enough demand for [the market to accept the GRI], so smaller companies are swooping in with lower rates."

The refusal to accept higher rate levels highlights a market where nimble participants are seizing opportunities to offer competitive rates, creating a wide range of rates for available forty-foot equivalent unit containers.

In addition, demand has been mixed throughout the North American markets as some peak season orders have already been fulfilled.

In July of this year, there was a spike in volume as shippers looked to beat the peak-season rush, and since then, rates have been slowly declining from their recent highs. As of Aug. 22, Platts assessed imports from North Asia to the US East Coast at $8,500/FEU -- down from a peak of $9,950/FEU on July 17, according to S&P Global Commodity Insights. Meanwhile, imports from North Asia to the US West Coast are priced at $6,800/FEU -- down $800 from a peak of $7,600/FEU on July 22. Platts is a part of S&P Global Commodity Insights.

However, with the looming threat of an International Longshoremen's Association strike on the East and Gulf Coasts of the US at the end of the month, market participants are weary of potential rate increases due to congestion on the East Coast and increased volume on the West Coast.

"Threat of delays at ports is prompting US importers to restock inventory and front-load orders -- volume (is) rising on the trans-Atlantic westbound trade lane," Hapag-Lloyd CEO Rolf Jansen said.

Although the overall market sentiment is skeptical that a strike would go on for very long during an election year, many are concerned on the impact that a short lockout would have on the containers market.

"I think the strike-- it's a one (day) and done kind of thing," said a North American freight forwarder.

But even a one-day disruption can require up to six days of recovery time, according to Alan Murphy, CEO of Sea-Intelligence.

Despite the potential impact of a short disruption, market participants say there has been little planning to deal with a longer strike.

"There's no real contingency plan for the ILA strike," a freight forwarder said.