As the peak season shipping gets underway, trade tensions between China and the United States has had importers looking ahead to Golden Week in order to anticipate ocean carrier capacity decisions in light of Low Sulfur regulation and the impact to rates and overall demand.
Fast approaching this October 2-7, Golden Week is a semi-annual, week-long holiday, during which time, overseas manufacturing in China stops and workers go home to celebrate with family.
BLANK SAILINGS
Traditionally, steamship lines take advantage of the lack of cargo moving from Asia during this time in order to implement blank sailings – when an ocean carrier instructs a vessel to skip specific ports of call, or simply cancels the sailing entirely. Blank sailings have often used by ocean carriers when demand for space starts to weaken and capacity needs to be removed from the market.
OCT 1-7, 2019 – GOLDEN WEEK
JAN 1, 2020 – IMO’S SULFUR FUEL MANDATE
JAN 24-30, 2020 – LUNAR NEW YEAR
For U.S. West Coast, carriers have already announced 8 blank sailings in October – estimated to reduce capacity by 5.4 percent. U.S. East Coast will only see 2 blank sailings the week following the holiday, further reducing ocean capacity by an estimated 10.6% through mid-October.
LOW SULFUR MANDATE
This year, however, ocean carriers have a more justified reason to remove vessels from circulation – beginning January 1, 2020, ships must use fuel with a sulfur content no higher than 0.5% or contain equipment to clean its sulfuric emissions, known as a ‘scrubber.’ Vessels failing to meet the standard could be declared ‘unseaworthy,’ lose insurance coverage, and face steep fines & penalties.
READ: IMO FUEL SULFUR REGULATION: WHAT SHIPPERS NEED TO KNOW
Steamship lines can use this impending regulation to dry-dock vessels for scrubber installation as a timely reason to remove capacity from specific trade lanes.
And, as import volumes from China into the U.S. continue to soften, there is even more reason for carriers to manage capacity carefully, week-by-week during the Golden Week holiday. In 2019, U.S. imports from China declined roughly 4.4 percent.
2019 FREIGHT CONTRACTS WON’T ESCAPE LOW SULFUR FUEL MANDATE
But even with the announced blanked sailings, ocean carriers would still have room to reduce capacity by an additional 3.6 average-sized vessels in order to match capacity from 2014-2018. International shippers could see additional vessels pulled from rotation surrounding Golden Week depending on demand.
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