A combination of strong demand and carefully managed capacity is boosting spot rates on the Transpacific container trades, just in time for contract season.The Drewry World Container Index – a benchmark of spot rates on eight East-West container trades, released every Thursday – shows that spot market freight rates from Asia to Europe have been declining for three straight weeks, but that rates from Asia to North America are holding much firmer.

Between 25 January and 15 February, prices from Shanghai to Rotterdam decreased 14%, whereas over the same period, rates from Shanghai to Los Angeles and New York were still higher, by 9.4% and 0.4%, respectively.

The Asia-Europe trade is much more directly impacted by the Suez Canal diversions, and as such, recent pricing hikes on that corridor were more easily explained. However, while there are some capacity constraints at the Panama Canal that connects Asia with East Coast North America, something else must be at play that explains why the Transpacific is outperforming the other major trunk routes.

The Transpacific is seeing above average spot rate gains for more basic reasons: it is one of the few major trades where demand is growing strongly and supply is being carefully managed. It can be classed as a success story for carriers and the timing of the market resurgence couldn’t have been better for lines with annual contracting season fast approaching.

Using data derived from Container Trades Statistics (CTS), Drewry estimates that demand growth in the headhaul Transpacific markets significantly outpaced that of Asia to North Europe during the second half of 2023.

The reasons why can be seen in comparable economic data sets. The US economy is firing at the moment with jobs growth beating analyst expectations and inflation falling quicker than predicted. The International Monetary Fund (IMF) last month raised its GDP outlook for the US this year by 0.6 points to 2.1%, the highest out of all the so-called ‘advanced economies’

Consumer confidence in the US, as measured by The Conference Board Consumer Confidence Index, is the highest it’s been in two years, rising for the third month in a row in January. In contrast, European consumer confidence is stable, at best.

With more money in their pockets, it seems that Americans are still eager to buy stuff, as well as spending on entertainment and other services. The appetite for the type of goods shipped in containers hasn’t diminished, post-lockdown, as much as elsewhere. Along with steady increases in disposable income, personal expenditure hasn’t completely flipped back to the pre-pandemic trend. For example, while the percentage of total US personal expenditure on durable goods is not quite as high as it was during lockdowns, it remains some 2 percentage points above the 2018-19 averages.

As impressive as recent demand growth has been, container volumes in the eastbound Transpacific still have a long way to catch up with the Covid-peak of 2021, so demand alone is not the driving factor behind the recent spot market rally.

Another point of difference between the Transpacific and Asia-Europe market is on the supply side. Drewry research shows that effective capacity on the latter trade is broadly the same as it was at the apex of the pandemic demand surge 3Q21, but in the former trade (most clearly for Asia to West Coast North America) there has been a bigger squeeze on supply that has raised utilisation to levels more supportive of higher freight rates.

As well as bilateral trade statistics, Drewry also tracks port throughput figures from major ports around the world to inform our in-depth analysis and forecasts in reports such as the Container Forecaster.

The US is a particularly rich source as many ports there are open with breakdowns by imports, exports and empties. When drilling into the splits from the nine largest ports in the US that provide such data, we can see how big a role loaded imports plays in the total throughput growth story.

The recent story of the US container market is one of volatile imports and stagnant exports, demanding more and more empty export moves.

In 2021, loaded imports at the major US ports increased by 17.5%, while loaded exports decreased by 5.5%. Because you need a close balance of containers in and out of any region, the mismatch between loaded imports and exports called for a large increase in empty export moves, which jumped 39.4% YoY at these selected ports.

The percentage of empty exports increased again in 2022, but did drop slightly last year, albeit still well above the ratios of 2018-20. The current fast-paced growth in US loaded imports and sluggish full exports, heavily implies that air (empty containers) will remain a large part of America’s exports to the world.

Our view

Contrary to the Asia-Europe and Transatlantic routes. the eastbound Transpacific container market shows a combination of stronger volumes and tightly managed capacity, which currently defy previous forecasts of global over-capacity.

Source: Drewry