Demand, capacity and spot rates slump on key Far East to US West Coast corridor

Carriers are fighting to shore up falling spot rates from the Far East to US West Coast, blanking some 1.5 million TEU of capacity over the last 12 weeks. However, despite this bold strategic play, rates have collapsed by 46.3% over the same period, currently averaging USD 4 150 per FEU (20 September). The latest data, released by Oslo-based Xeneta, highlights a shift in market fundamentals at what is usually a peak season for operators.

Peter Sand, Xeneta’s Chief Analyst, notes that carriers will no doubt be concerned about the wider implications of the increasingly global spot trend.

Wakeup call?

“This is the highest number of blanked sailings on this key trade since January and February, at a time when the industry would normally have anticipated very strong demand,” he says, adding: “It’s an aggressive strategic play by carriers, but it’s clearly not paying dividends.

“The last four weeks has seen capacity falling to its lowest levels since February, with an average of 275 000 TEU leaving the Far East for the US West Coast, about 50 000 TEU less than the peak in early August. Compared to the same period in 2021, capacity is down by some 13%. That’s the equivalent of removing 21 ships of 8 000 TEU, which is the average vessel size on this trade.

“And still, the spot rates are falling… which is bound to impact on the long-term contracted agreements in the near- to mid-term. Are we beginning to see a wakeup call for carriers after such a prolonged period of growth? All stakeholders in the value chain will be watching out for the latest data to assess the landscape going forwards.”

Declining demand

For now though, the trend is clear, leading to a stark supply and demand shift. According to Xeneta, for 2022 to date, capacity offered on the route is more than 600 000 TEU down year-on-year (-5.4%). The volume change is even more pronounced, with 700 000 TEU (Source: CTS) less making the journey from the Far East to the US West Coast in the first seven months of the year.

“That’s a lot of containers,” Sand remarks, adding with a note of caution; “but we do have to keep things in context.”

Here he points out the historical highs in capacity, demand and rates that the headline figures are falling from.

“To get things into perspective,” he comments, “compared to the same period in 2019, capacity on this trade is up by 240 000 TEU, whereas demand is up by 890 000 TEU. So, relatively speaking, the trend is worrying for carriers, but the figures remain strong. That said, what has happened to ‘peak season’? It just doesn’t seem to have materialized, does it?”

A positive knock-on effect of the declining capacity is the improvement in scheduled reliability for vessels on the trade. Data shows that 27.1% of ships are now sailing on schedule, an 11% improvement over this point last year. The average delay for late ships is also down, currently standing at 9.6 days.

Air freight overview

Taking to the skies, Xeneta’s air freight data this week indicates a complex market picture defined by ongoing disruption and uncertainty.

In mid-September average rates from Asia Pacific to Europe and Middle East stood at USD 5.59 per kg, a 21% fall from their peak at the start of 2022. Spot rates are now lower than contracted rates – USD 5.52 per kg versus USD 5.58 per kg – something not seen in over two years. Meanwhile, despite a load factor that is down 7% since 2022 began (now at 85%), air freight rates have risen 2.8% year-on-year.

Although that figure isn’t significant in itself, it hides an overall jump of 166% against pre-COVID levels.

“It’s been a crazy time in the air here, as well as on the waves, for shippers and carriers,” Sand comments. “But this year ground handling issues, jet fuel prices, the impact of the Russia-Ukraine conflict and, of course, the on-going pandemic have all impacted on confidence, supply and demand. This has led to an increase in the number of shippers heading to the spot market, instead of contracts, and, more recently, high volatility in load factor movements.”

Growing margins

According to the data, some 43% of the Asia Pacific to Europe and Middle East trade is now sold on the spot market – up from 34% three years ago – while on the China to Europe corridor there’s a 56% bias (here spot rates are still higher than their contracted counterparts).

Interestingly, Xeneta has also found that freight forwarders appear to be increasing their margins on the China – Europe trade, with a growing spread between their ‘buy’ and ‘sell’ rates over the course of the year. This suggests, the firm states, that spot rates here are likely to remain elevated in the upcoming air cargo peak season.

Oslo-based Xeneta’s unique software platform compiles the latest ocean and air freight rate data aggregated worldwide to deliver powerful market insights. Participating companies include ABB, Electrolux, Continental, Unilever, Nestle, L’Oréal, Thyssenkrupp, Volvo Group and John Deere, amongst others.