Trans-Pacific Spot Rates Fall Again

Source: www.joc.com

With a peak-shipping season in the eastbound Pacific still building, spot rates this week edged lower for the third straight week, falling 3 percent the East Coast and 5 percent to the West Coast.

The spot rate for shipping a 40-foot container to the East Coast this week was $2,013, down from $2,081 per 40-foot equivalent unit container last week, and the West Coast rate was $1,092 per FEU, down from $1,146 last week, according to the Shanghai Containerized Freight Index published under the Market Data Hub on JOC.com.

Despite the lackluster rate performance this month, the freight-rate picture is much different than last spring and summer when rates hit record lows due to overcapacity. This  week’s spot rate to the East Coast was 35 percent higher than the $1,496 per-FEU rate last year in week 25, and the West Coast rate was 45 percent higher than the $753 per-FEU rate.

Imports from Asia are beginning to pick up in the major east-west trade lanes, with retailers in the US and Europe anticipating a relatively strong  peak season. Space is already beginning to get tight on the Asia-Europe trade lanes, carrier executives reported Friday.

The peak season arrives later in the US than in Europe because Thanksgiving weekend is the traditional beginning of the holiday season in the US, and retailers time their imports for their big sales that weekend. August and September are usually the busiest months of the year in the eastbound Pacific, with West Coast ports experiencing another bump in October from the higher-value, time-sensitive shipments. Routing shipments through West Coast ports and on to interior destinations via intermodal rail saves retailers 10 days to two weeks in transit compared to all-water services to the East  Coast.

So far 2017 is developing as a relatively strong year for US imports, with imports up 5.3 percent in the first five months, according to Alphaliner. Economists are predicting growth of about 5 percent to 6 percent, carriers will have to struggle to implement rate increases because they continue to compete with each other for market share. Therefore, even though import volumes are increasing, and space on vessels is beginning to tighten, carrier competition is keeping a lid on rates in the east-west trade lanes.

After a decent, but not spectacular service-contracting season with their largest customers, carriers are looking to the peak-season as a time to achieve profitability for the year with general rate increases or peak-season surcharges. In recent years, the GRIs have been short-lived. If ships begin to fill up early and stay full through October, carriers this year will have a better chance of sustaining the rate hikes, but that all remains to be seen.

Additional Information:

  1. JOC Trans-Pacific Market Data

Evergreen – Alibaba Carrier Line Partnership Trend Continues

Source: www.joc.com

Evergreen Line has become the latest carrier to team up with Alibaba.com, joining Maersk Line and CMA CGM in offering direct booking services to Chinese users of the giant online e-commerce marketplace.

In its drive towards giving the mainland’s vast online shopping market more direct control of their shipments, Alibaba.com shippers in China will now have the option of booking Evergreen ocean freight services online with guaranteed space and prices. Similar direct booking services were arranged with Maersk Line in January and with CMA CGM in February.

Evergreen Logistics Corporation will handle the customised logistics solutions for Alibaba.com members and allow shippers to search for freight rates on the online platform and reserve cargo space directly, a service that will be available primarily to suppliers in China. Once a booking is confirmed, the selected price will be locked in, and the rate will not alter regardless of how the market price changes, the Taiwanese carrier said in a statement.

However, the Evergreen booking facility will initially only be offered on routes from China’s main ports to Israel and South America.

The e-commerce market is dominated by small volume shippers, and much of the products ordered online use couriers and air freight. Meeting the time-sensitive requirements of online shoppers is a difficult challenge for ocean freight providers, which is why the carrier focus is on China suppliers using the Alibaba.com platform.

Alibaba has also been active in lining up deals with the forwarding community as its members demand greater end-to-end logistics solutions. Kuehne + Nagel in April enhanced a year-old agreement with Alibaba.com that allowed Chinese clients of the e-commerce site to obtain instant quotations and book pick-up and destination delivery services for air freight consignments via the KN FreightNet website.

In January, Alibaba concluded a cross-border e-commerce cooperation agreement with the world’s largest logistics network, WCA Ltd., for shipments generated by Alibaba.com members and destined for the major export markets of the United States, India, and the United Kingdom. It will allow approved WCA member companies to be integrated into the Alibaba.com logistics platform for cross-border e-commerce shipments.

Zvi Schreiber, CEO of online booking and rate quoting platform Freightos, said companies that have focused on e-commerce and fulfillment were expanding across the supply chain, leveraging vast amounts of capital to grow their future business.

“Alibaba’s real competitive advantage may lie in its anticipated rapid development of the local Chinese logistics infrastructure, which could give it ownership of low origin prices for exports as well as fulfilment on shipments to China,” he said.

Additional Information:

  1. Evergreen latest container line to announce Alibaba tie-up (Seatrade Martime News)
  2. Evergreen follows competitors with new Alibaba partnership (Shipping Watch)
  3. Container shipping lines sign up with Alibaba to offer online booking (Reuters)

Almost a done deal… COSCO and OOCL Tied-up?

Image result for cosco and oocl

A merged Cosco-OOCL would be No. 2 carrier serving US 

Source: www.joc.com

Rumors surrounding a Cosco-OOCL tie-up refuse to go away despite repeated denials by both carriers. However, if the price was right and the China and Hong Kong lines did come together, a formidable new global entity with the third-largest mega-ship fleet and the second-largest mover of US containerized goods would be created.

Based on US container volume in 2016, a merged line would give Mediterranean Shipping Co. fiercer competition for market share by handling 9.9 percent of all of US exports and imports. MSC controlled 11.9 percent of volume last year, while third-place Maersk Line handled 9.4 percent of volume, according to an analysis of PIERS, a sister product of JOC.com within IHS Markit. Cosco and OOCL were the sixth-and seventh-largest movers of US containerized cargo, respectively, in 2016, with 5.26 percent and 4.65 percent shares.

In terms of shares of US imports in 2016, OOCL ranked No. 9 (4.5 percent) and Cosco No. 6 (6.3 percent) as the former’s volume rocketed 30.2 percent year over year and the latter’s volume jumped 14.6 percent. A merged carrier would be the second-largest mover of US container imports, with a share of 10.8 percent share, according to PIERS.

OOCL ranked No. 6 (5 percent) among carriers moving US exports in 2016, while Cosco ranked No. 11 (3.5 percent).  OOCL’s volume of US exports rose 16.9 percent, and Cosco’s volume jumped 39.8 percent year over year last year.  A merged carrier would have been the third-largest mover of US exports, with a share of 8.5 percent, last year.

Cosco has 49 vessels with capacities of above 10,000 TEU, while OOCL has 15 such ships, potentially resulting in a merged fleet of 64 mega-ships, according to the IHS Markit orderbook. MSC has the largest mega-ship fleet, with 85 such vessels, followed by Maersk, with 72 mega-ships. The ranking could change as more carriers receive mega-ships.

Long-running speculation that Cosco would announce its plan to acquire OOCL from Orient Overseas (International) Ltd. (OOIL) on July 1 — to mark the 20-year anniversary of the UK handing over Hong Kong to China — mounted after Cosco Shipping Holdings temporarily suspended trading of its stock May 17.  The mainland’s major carrier said in an exchange filing that the share suspension was because of “material asset restructuring,” but it did not explain further.

Citing unnamed sources familiar the matter, The Wall Street Journal said the merger could close as early as July for at least $4 billion. One source told the WSJ that the Tung family is “warming”up to the sale of OOCL, which traces its roots to Shanghai in the 1940s, when C.Y. Tung set up Chinese Maritime Trust Ltd.

There has been huge asset relocation within Cosco Shipping since Cosco and China Shipping brought their operations under one umbrella on Feb. 18, 2016; a continuation of this could be the reason behind the halt in stock trading. At the time of the merger the shipping lines had huge fleets of container ships, dry bulkers, tankers, and chemical vessels, with terminals around the world and significant logistics operations.

The new liner company falls under Cosco Shipping Holdings, which has plans to boost its fleet by at least 50,000 TEU to more than 2 million TEU by year-end 2018, making the container line the world’s third-largest and displacing CMA CGM.

The acquisition of OOCL by Cosco for roughly $4 billion would be “a very, very competitive price” for a prized and well-run carrier as the industry strengthens, Drewry Financial Research Services (DFRS) wrote in a note. Cosco would improve its yield over the next several years, resulting in stronger earnings, wrote Rahul Kapoor, director at DFRS.

“As the industry is witnessing a strong upturn, and valuations have risen materially, both the time and price is right, in our view,” he wrote.

Cosco Shipping bounced back from its $1.4 billion 2016 loss with a profit of $39 million in the first quarter, driven by its container division, which reported surging volumes and a solid increase in revenue. Cargo volume at Cosco, which operates a fleet of 327 container ships, shot up 54 percent compared to the first three months of last year, with the liner unit carrying 4.65 million TEU.

OOCL reported a $273 million loss in 2016 as weak freight rates dragged down the average revenue per TEU by almost 19 percent to just $774 per container. Although it didn’t disclose earnings for the first quarter, Cosco on April 28 reported volume rose 7 percent-year-over-year, while revenue increased 6.4 percent, to $1.18 billion. Overall revenue per TEU, however, slipped 0.6 percent from first-quarter 2016.

The wave of mergers and acquisitions in the past 18 months are a result of carriers’ drive for scale to lower unit costs amid intense competition between the alliances — 2M-plus HMM, (Maersk, MSC, and Hyundai Merchant Marine); Ocean (CMA CGM, Evergreen, OOCL, and Cosco Shipping); and THE (Yang Ming, MOL, NYK, “K” Line, and Hapag-Lloyd). This has placed the smaller carriers under pressure, with transport analysts convinced that to survive in such a size-dominated market, OOCL, Yang Ming, and Zim Integrated Shipping Services will have to be acquired by a larger rival at some point.

Additional Information:

  1. OOCL and COSCO quiet on takeover talk (SPLASH24/7)
  2. OOIL denies reports of OOCL sale to COSCO (Seatrade Maritime News)
  3. COSCO is to buy OOCL (The Load Star)

Trans-Pacific Struggle for Market Share – Dragging Down Rates

Even as rates have fallen, container volume on the Asia-US trade has risen sharply.

Source: www.joc.com

The battle for market share on the trans-Pacific can be clearly seen in the freight rate levels that have slumped to a 10-month low even as volumes grow strongly on the trade and the peak season approaches.

Spot rates from Shanghai to North America have dropped to $1,146 per FEU to the West Coast and $2,081 per FEU to the East Coast, erasing all gains made since September 2016 when Hanjin’s sudden departure resulted in a surge in spot freight rates, according to Alphaliner.

Data from PIERS, a sister product of JOC.com within IHS Markit, show eastbound trans-Pacific volume increasing by 5.3 percent in the first five months of the year. Alphaliner said the May liftings numbers reveals that all the main carriers (apart from Hapag-Lloyd and UASC) have capitalized on Hanjin’s departure from the trans-Pacific trade with notable volume gains by new entrant SM Line, PIL (up 108 percent), HMM (up 60 percent), and OOCL (up 56 percent).

The analyst said the three Japanese carriers — “K” Line, MOL, and NYK — also chalked up an impressive 28 percent combined gain and are set to become the single largest carrier on the trans-Pacific route when they merge their container operations in April next year under the trade name of Ocean Network Express (ONE).

However, the PIERS numbers also highlight the regional shifting of cargo through gateways on the East Coast. The Port of New York and New Jersey lost market share of Asian imports, its East Coast share declining to 34.5 percent from 35.7 percent. During the same period, Savannah’s share increased to 27.6 percent from 26.2 percent; Norfolk’s, to 13.1 percent from 12.8 percent; and Charleston’s, to 9.7 percent from 8 percent.

Ports on the US East and West coasts reported record container volume in May. The Georgia Ports Authority handled 350,104 TEU in May, 11.68 percent more than during the same month a year ago, or 36,619 additional TEU. The Port of Charleston saw container volume rise 9.4 percent compared with May 2016, handling 182,452 TEU.

“The port is on pace to achieve record volume of nearly 2.1 million TEU when our current fiscal year ends on June 30,” said Jim Newsome, South Carolina Ports Authority president and CEO said of the Charleston performance.

Over on the West Coast, container volume at the Port of Los Angeles increased 3.4 percent in May compared with the same period last year, marking the busiest May in the Port’s 110-year history. A total 796,216 TEU crossed the port’s wharves.

“We continue to see balanced year-over-year growth both on the import and export side of our operations,” said Gene Seroka, executive director of Los Angeles.

While east-west rates remained under severe competitive pressure, even as the market heads toward the container shipping summer peak season, Alphaliner said the opposite was occurring on the north-south trades.

Spot rates from China to South America have risen to their highest levels since 2009 when the SCFI assessment was first published, reaching $3,551 per TEU. Rates have more than doubled in just three months and they are light-years away from the market bottom in early 2016, when containers were shipped from Shanghai to Santos for as little as $100 per TEU, the analyst said in its weekly newsletter.

Rates to Africa and the Middle East also recorded significant gains in the past three months, as capacity cuts on these north-south routes, implemented during the past 18 months, resulted in space shortages now that volumes have started to recover.

Additional Information:

  1. Falling rates drag on Hamburg Sud revenue (JOC)
  2. Your One Stop News Sources for All Things Shipping (World Freight Rates)

Unsteady Alliances Threaten Pricing

Featured Photo

Source: http://www.benavest.com/

 

Moving close to 95% of all manufactured goods across boundaries, container shipping has traditionally always been controlled by extremely wealthy individuals, or sovereign-wealth funds. Yet as ports around the world face new operational challenges due to ocean carriers scrapping and restructuring their vessel-sharing alliances; terminal operators, carriers, and equipment providers are scrambling to develop a plan of cooperation so shipper costs don’t spring out of control. On April 1st, 2017, ocean carriers will reduce their alliances from four to three, drastically changing the vessel strings and port calls that will have a worldwide effect in the logistics industry. Overnight, US gateways will transform, with a huge shift in vessel calls, container volumes from port to port, and from terminal to terminal within different individual ports based upon “scale” and “efficiency.” As cargo interests will choose their cargo flow gateways with the fewest obstructions and the final bottom-line costs to their supply chains; container lines will pick terminals that are the most effective at handling the enormous vessels that are being deployed around the world. The Ocean Alliance will control 35% of the total Trans-Pacific Trade, THE Alliance will own 39%, and the 2M Alliance + Hyundai Merchant Marine (HMM) will own 17%. According to Alphaliner, the three alliances will control the lions share, at 91% of US trade volume.

 

Wall Street Framed

Source: http://www.wsj.com/

 

With many spot rates varying as much as 30% for beneficial cargo owners that book through non-vessel-operation common carriers, the ones that gun for the lowest rates have the highest chances of getting their cargo “rolled”, or be forced to pay above market rates when space is tight. Many anticipate a huge drop in rates after the Lunar New Year that came early on January 28th, 2017 as many carrier alliances have declared a plethora of cancelled sailings that will endure till March. Blank sailings on prominent East-West trades run the gauntlet with blank sailings announced from 2M Alliance’s Maersk Line & Mediterranean Shipping Company, G6 Alliance’s APL, Hapag-Lloyd, Hyundai Merchant Marine, Mitsui MOL, NYK Line, & Orient Overseas Container Line. Yet so far, at least Asia-Europe spot rates have seemed steady as the Lunar New Year took off this past weekend as factories closed for a two week long celebration.

 

With rates showing a $500 gain per TEU higher than it was a year ago from Shanghai to North Europe, and $357/TEU higher on Shanghai to Mediterranean rates, rate recovery has been considered relatively robust and declines have been considered slow compared to the rates from last year. Peter Sand, chief shipping analyst BIMCO states, “The container shipping lines will increasingly focus on reaping the benefits of consolidation and we will most certainly see their profits go up.”

 

Asia Europe Framed

Source: http://www.wsj.com/

 

As last year’s brutal season of low freight rates have all but destroyed container line profitability, we have seen a major line collapse with Hanjin Shipping, and a huge wave of consolidation throughout the industry as carriers merged and formed new alliances to simply lean on one another to survive. It isn’t a question of whether spot rates will fall in February, but rather, by how much and how severe the decline will be. As Asia embarks on their annual yearly celebrations, it is only a matter of time before BCOs and the logistics industry will get a true reading on spot rate strength, and developments of pricing will make its way to the 2017 service contract bargaining table.

 

Additional Information:

  1. Shipping Alliances Shore Up Industry, Unsettle Customers (WSJ)
  2. New Alliances Threaten to Raise US Port Costs (JOC)
  3. Global Shippers Sound Alarm on Alliances, Consolidation (JOC)
  4. Asia-Europe Spot Rates Steady as Chinese New Year Begins (JOC)
  5. Trans-Pacific Spot Rates to Signal State of Carrier Discipline (JOC)