Continuous congestion trans-Pacific route contract freight rate continues to rise! The shipping crisis has worsened and the freight rate has tripled.

Continuous congestion, trans-Pacific route contract freight rate continues to rise!

The long-term agreement price for Trans-Pacific eastbound in 2022 will be significantly higher than the service contracts signed in previous years, as retailers and other importers put shipping capacity and services above freight rates, Xeneta, a sea and air freight benchmark and market analysis platform, said on Monday.

According to Xeneta, the East Coast contract price signed since December 1st is 160% higher than the same period last year and 300% higher than in 2019.

"for most shippers, ensuring the required capacity will be more valuable than the carrier's commitment to the lowest freight rate," Xeneta said in a statement.

Xeneta said the average long-term contract price on the west coast over the past three months was $6548 / FEU, while the average price on the east coast was $10100 / FEU, as importers "flocked to the east coast to avoid congestion and associated risks on the west coast".

During the three-month period from December 1 to February, the average contract freight rate for three to 12 months from Asia to the west coast of the US increased by 125 per cent compared with the same period last year and 350 per cent from before the outbreak, according to Xeneta. The freight rate for contracts signed on the east coast since December 1 has risen 160 per cent from a year earlier and 300 per cent from 2019.

In a statement issued after last week's TPM22 meeting in long Beach, Xeneta said shippers, carriers, NVOCC (NVOs) and industry analysts said maritime and land congestion in the United States would strain shipping capacity this year, delaying tariff cuts for retailers and other importers until 2023 at the earliest.

Last fall, operators began signing service contracts with their most popular customers, with West Coast rates reportedly ranging from $6000 to $8000 / FEU,-more than double the price of about $3000 / FEU in 2021-22, most of which expire on May 1st. Contract prices have risen further in the past two months as shipping companies have turned their attention to medium-sized shippers and non-vessel carriers.

"Trans-Pacific contract rates are catching up with spot market prices," Alan Murphy, chief executive and partner of maritime consulting firm Seaintelligence, told TPM22.

The congestion on the ocean and land side weakens the transport capacity.

Shipping companies were unprecedentedly strong in contract negotiations in 2022-23, in part because of strong imports and because supply chain bottlenecks in Asian and US ports are reducing the efficient capacity of carriers to deploy ships. Thorsten Meincke, director of air and shipping operations at freight forwarder DB Schenker, pointed out that shipping operators are slowing their voyages from Asia to better adjust their arrival times to US ports based on berths and labour supply.

According to Meincke, capacity on trans-Pacific routes increased by 31 per cent last year, but effective capacity fell by 8 to 25 per cent at different times due to delays or slow sailing at ports, resulting in a "surge in interest rates".

Us imports from Asia rose 4.5 per cent in January from a year earlier to a record 1.7 million TEUs, after rising 14.4 per cent for the whole of 2021, according to PIERS, a unit of IHS Markit. While industry analysts and carrier representatives say import growth will slow to a more normal single-digit growth this year, the supply chain is carrying so much that they will continue to reduce the effective capacity of ships deployed across the Pacific.

Relief will not be possible until 2023.

Lars Jensen, chief executive and partner of Vespucci Maritime, said current international trade bottlenecks would continue to lead to capacity shortages "until the end of 2022 if we are lucky", but more likely until 2023.

Us retailers and other importers are counting on a surge in new ship deliveries in 2023 and 2024 to stabilize the balance of supply and demand across the Pacific. However, industry analysts point out that IMO 2023 decarbonization regulations on greenhouse gas emissions could have a significant impact on older, smaller Panamanian ships with a capacity of less than 5000 TEUs.

Most of the new services deployed by carriers who entered the trans-Pacific route last year used Panamanian ships. On its main routes, major allied shipping companies operate newer, larger vessels, the vast majority of which comply with IMO 2023. But it has also deployed dozens of small "extra load" vessels to cope with the surge in imports, many of which will not comply with IMO IMO regulations.

The representative of the carrier said that the deployment of old ships would begin to decrease in 2022. Jeremy Nixon, chief executive of ONE, said that "additional loading of ships is not the solution to the trans-Pacific capacity shortage."

The shipping crisis has worsened, and freight rates have tripled.

The conflict between Russia and Ukraine has made the supply chain crisis, which is already difficult to alleviate, even worse. Glenn Koepke, an expert at supply chain consultancy FourKites, said recently that the conflict could cause another blow to the global supply chain, leading to skyrocketing sea and air prices. The rate per FEU from China to the United States may double or triple, from $10000 to $30000 per 40-foot container.

Maersk Shipping (Maersk) and Mediterranean Shipping (MSC), the world's top two container shipping companies, as well as (CMA CGM) of France, Hapag-Lloyd of Germany and (ONE), a Japanese shipping company, have also suspended orders for Russian goods. The five companies account for nearly 60 per cent of the global market, according to Alphaliner, an international shipping industry analyst. Market participants predict that the suspension of their services to Russia will aggravate the difficulties in the supply chain and lead to a sharp rise in shipping charges.

At present, the collection and transportation companies have begun to raise freight rates. From March 15th and April 1st, the collection and transportation companies have respectively raised the "container comprehensive rate surcharge" (GRI), "fuel surcharge" (BAF), international collection and transportation giant even began to impose "port demurrage". People in the industry pointed out that after this round of increases, the increase in freight rates is likely to rise by 50%.

Glenn Koepke said that the collection market is not yet the peak season, but as companies begin to increase summer traffic, it will have a significant impact on the supply chain. Some shipping companies offer other alternative routes, such as Hebrot, which will open a Sino-German express service from April, connecting Shenzhen Dachan Bay Terminal to Hamburg, with a transit time of 27 days.

Maersk Shipping has also begun to promote multimodal transport services, capable of transporting goods from Busan, South Korea, via the Trans-Siberian Railway to Kaliningrad, a Russian port on the Baltic Sea, and then to other parts of the Baltic region in less than 20 days. By contrast, it takes 60 days of ocean voyage to cross the Suez Canal, but services through Russian territories may face the risk of new restrictions and sanctions.

As about 41% of the world's exports come from Asia, and Ukraine is one of the ancient trade routes between China and Europe, the war has led to the interruption of trade routes, and the European countries are the most affected. The longer the tension between Russia and Ukraine continues, the greater the impact on logistics in Europe as a whole. Maersk Shipping warned customers that this is a global impact, not only limited to trade with Russia, the supply chain is still seriously disrupted.

But the market also has different voices. Andy Lane, director of shipping consultancy CTI Consultancy, is more optimistic, arguing that the withdrawal of ships from routes into Russia or the Black Sea represents an increase in capacity in other markets and trade routes amid a global shortage of ship capacity. Although it is negative for Russia and Ukraine, it may be positive for other regions.