This report is based on S&P Global Platts monthly container market review, written by George Griffiths, as well as additional data points from Panjiva's research and services. For more details on S&P Global Platts container pricing, please click here. 

What we have seen

Freight rates from North Asia to the U.K. hit an all-time high on Jan. 4 as demand continued to rise and ongoing equipment shortages plagued the market, leaving carriers with little option but to increase rates in order to maintain profit margins. Platts Container Rate 11 — North Asia to the U.K. — hit $10,000 per 40-foot equivalent unit, or FEU, an increase of 285% from Nov. 30, 2020, and these strong rates are expected to continue through toward the end of the quarter.

Some shipping lines were also seen implementing new strategies to not take loaded containers on backhaul trips to Asia so that there is a quick turnaround to alleviate the logistical delays there. This is expected to carry on until the end of the first quarter.

"This is really a self-perpetuating cycle," said a carrier source. "The more demand there is to Europe, the keener we are for faster turnaround times in Asia, so the more likely we are to only take empty boxes back, so the harder and more expensive it becomes to export from Europe."

Panjiva Insight: The surge in shipping rates combined with changing business practices from the container lines has attracted regulatory scrutiny from Vietnamese and the U.S. authorities, among others, as well as coming in the midst of a review of a new maritime law in India, as flagged in Panjiva's Feb. 1 research. The Federal Maritime Commission's review in the U.S. could be particularly relevant for the container shippers given the specificity of the case being investigated. The container lines so far show little sign of trading off short-term economics against longer-term risks.

Container rates on North Asia-to-East Coast North America and North Asia-to-West Coast North America routes surged to an all-time high at the start of the year, with firm demand from importers and persistent equipment shortages supporting the prices. Platts Container Rate 13-North Asia to West Coast North America-rose to a new high of $4900/FEU in the first week of January. PCR 5-North Asia to East Coast North America-touched the record high of $6,400 per FEU in the same week.

"All of the top 100 importers in the U.S. are facing inventory shortfalls and will keep playing catch-up for the foreseeable future," a U.S.-based freight forwarder said. Rates, however, slid later as carriers imposed landside surcharges and offered premium services in place of general rate increases, or GRIs.

Even as base rates are on a downward trajectory, carriers are continuing to levy premium service charges, which guarantee space and equipment for shippers.

But most of these offerings are just "almost guarantees," according to a North American logistics provider. Adding that "people are getting a little tired [of premium services], and customers are coming out of the woodwork asking for help."

North American market focus

Trans-Pacific container trade remained active throughout January as retailers replenished inventories after the year-end festive season. Contrary to the historic trend, import levels remained high as the fallout from the coronavirus pandemic boosted consumer demand.

Freight rates on the ex-Asian eastbound routes eased off as most carriers opted not to implement GRIs, instead offering premium services in order to guarantee equipment and slot allocation.

Platts Container Rate 13 — North Asia-to-West Coast North America — was assessed at $4,500/FEU on Jan. 21, down $400/FEU since the beginning of the year. And containers bound for the North American East Coast were assessed at $5,600/FEU on Jan. 21, brought down $800 from Jan. 4 as carriers were bearish toward Freight All Kinds, or FAK, rate hikes.

Port congestion and equipment shortages continued to hinder fluid container movements throughout January. The Port of Los Angeles and the Port of Long Beach, the two busiest container gateways in North America, have been at the center of terminal congestion, where some 30-35 ships per day wait at anchor to unload cargo. "Right now what's really contributing to everything is that we're seeing vessels delayed," said a North American carrier source.

Imports do not appear to be slowing. The Port of  Los Angeles expects to handle 143,813 20-foot equivalent units, or TEUs, during the week ended Jan. 30, an increase of 93.3% over the same week last year, a carrier source said. 

Panjiva Insight: That pattern can be seen across the U.S., with total seaborne imports in the first two weeks of January having increased by 9.6% year over year. The decision by the three shipping alliances to cut 24 sailings to reset schedules may help reduce congestion in the short-term but will face a renewed surge of demand shortly after the holiday.

On the backhaul routes out of North America, rates ticked up, buoyed by carriers' desire to quickly reposition equipment to Asian exporting hubs. Platts Container Rate 14 — West Coast North America-to-North Asia — was assessed at $650/FEU on Jan. 21, up $50 from the previous month. Rates for Asia-bound boxes leaving the East Coast of North America also rose $50 to $750/FEU.

Bunker prices on the trans-Pacific trade strengthened in January, tailing the recovery in energy futures and wholesale fuel oil.  Congestion issues and tight supply fundamentals also supported the prices, sources said.

A slowdown in the recent trend of rising prices might prove welcome to the bunker industry. The prospect of rising oil prices points to a rising rate of risks to marine fuel quality, Soren Holl, CEO of bunker trader and broker KPI OceanConnect, told Platts in an interview.

Platts Bunker Charge 13 — North Asia-to-West Coast North America — rose to $296.77/FEU on Jan. 22, up 10.6% on the month. PBC5 — North Asia to East Coast North America — rose 11% on the month to $500.49/FEU.

U.K. and North Continent market focus

January saw container rates rise to all-time highs for the Asia-Europe trade lane, on the back of ongoing equipment shortages in the market and firm demand spilling over from the front-loading ahead of Christmas holidays and the potential no-deal Brexit.

The logistics constraints in the market are continuing to cause headaches for Europe-based exporters, with some carriers not taking loaded exports until mid-February, opting instead to only take empty containers, in a bid to remove the tightness in the system that has come from a dearth of free containers in transit.

Panjiva Insight: There are also intra-Europe constraints for supply chains, with Schenker AG being followed by DHL Express (USA) Inc. and Dpd (Nederland) B.V. in temporarily suspending shipments from the EU to the U.K. on concerns regarding equipment balance and challenges with paperwork following the implementation of the EU-U.K. Trade and Cooperation Agreement.

Despite demand remaining firm until Lunar New Year, the outlook past this point looks somewhat softer, resulting in rates appearing to have hit their peak. "We've tapped out at the top now," said a U.K.-based freight forwarder. "Like any good rollercoaster, we've endured the rise, now we get the thrill of the fall until more demand comes in and we end with rates looping back up again."

This sentiment appears to be echoed around the market, with demand likely to tail off after the Lunar New Year holidays, with the high freight rates making some arbitrage opportunities prohibitively expensive.

"The silly thing is that now rates are too high for there to be any fresh cargoes booked — any arbitrage is closed, and it's not just a question of 'oh the consumers will pay more' because these imports are no longer competitive," said another freight forwarder.

Panjiva Insight: The start of the corporate earnings season has begun to reveal the impact of elevated shipping costs with Tesla Inc. and Autoliv Inc. both referencing higher freight costs. The U.K. construction industry is also facing logistics bottlenecks for shipments from Asia. U.S. building supply companies have also seen a surge in demand. Congestion in automotive supply chains has also beset Nidec Corp. and even the fish industry has been beset by a mix of logistics and trade policy complications.

Platts Container Rate 1 – North Asia-to-North Continent — rose $1,700/FEU to $8,500/FEU on Jan. 22, on the back of the January GRIs, from $6,800/FEU a month earlier; however, the mid-month GRIs failed to stick in the market. Similarly, PCR11 — North Asia to the U.K. — rose $2,000 to $10,000/FEU over the same period.

As with previous months, bunker fuel prices around the world continued to rise, pushing higher on a stronger oil complex and leaving the Platts Bunker Charges in a strengthening position. This has come as a shock to some shippers who are now seeing carriers' BAF clauses come into force on top of the already high freight rates and with expectations that these rates will rise further, many are keeping a close and watchful eye on these movements, especially as annual negotiation season approaches.

Platts Bunker Charge 1 — North Asia-to-North Continent — to $269.79/FEU on Jan. 22, from $249.35/FEU a month earlier, a rise of 8.2%, whilst PBC2 — North Continent-to-North Asia — rose 8.2%, to $145.27/FEU from $134.27/FEU.

Panjiva Insight: The increase in bunker fuel costs has done little to offset rising container rates. As a result, the profitability of the container lines has likely continued to increase. The Bunker Excluded Rate on Asia to U.S. West Coast routes climbed by a further 18.5% sequentially in January on average compared to December, reaching $3,902 per FEU by month-end. Shipments from North Asia to Europe are worth even more, increasing by 43.5% on average in January versus December, reaching $8,227/FEU by month-end.

Christopher Rogers is a senior researcher at Panjiva, which is a business line of S&P Global Market Intelligence, a division of S&P Global Inc. This content does not constitute investment advice, and the views and opinions expressed in this piece are those of the author and do not necessarily represent the views of S&P Global Market Intelligence. Links are current at the time of publication. S&P Global Market Intelligence is not responsible if those links are unavailable later.

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