As the freight market heads deeper into typical peak season shipping, a wave of uncertainty has importers and exporters on alert, and carriers trying to balance unforeseen demand against United States’ trade policy.
Back in May, contract rates to the East and West Coasts were steady and $100 lower than they were in 2017. So, what has happened in the past 6 months to drive prices soaring to their highest spot rates the industry has seen in years?
When oil prices spiked in July, carriers implemented the first round of emergency bunker fuel surcharges that initiated peak season general rate increases (GRI). From here, the market was off to the races as U.S. importers frontloaded inventory in an effort to deliver before $50 billion worth of imports from China were hit with tariffs. Then, as carriers removed capacity during the summer to balance demand, shippers started to see typical peak behavior; bookings began to roll and spot rates soared once again. Steamship lines tried to right the ship by re-deploying capacity back into the market, but the threat of an additional 25 percent tariff on all U.S.-bound Chinese cargo starting January 1, 2019 has kept demand strong and space tight.
With vessels full through the end of the year, domestic transport is also seeing its share of problems. Extra demand has strained market capacity amid mega-vessel deliveries. From legal issues on the West Coast with Senate Bill 1402 placing driver payment liability on shippers, chassis equipment availability problems nationwide, electronic hours-of-service enforcement, and intermodal backlogs; the final mile is costing more and more in the United States.
Most U.S. businesses do not believe China–U.S. talks, planned for December 1stG20 Summit in Argentina, will delay additional tariffs and expect demand to remain strong past the typical shipping lull after the holidays. Coinciding with an early Chinese New Year, February 5-19, the two-week shutdown of Chinese manufacturing is predicted to extend elevated shipping levels further and set the stage for annual beneficial cargo owner (BCO) contracts in April. Importers and exporters need to carefully evaluate the short- and long-term implications of an extended trade dispute and how it might impact sourcing solutions. All bookings for cargo delivering before the end of the year are recommended 2 weeks in advance. Shippers should expect additional carrier general rate increases (GRI) and fuel surcharges.