An increasing number of canceled sailings between Asia and the U.S. is tipping rates in the carriers’ favor. The upshot is that ocean carriers are taking advantage of some of the best rates in three months by deferring contract cargo in favor of spot freight as shippers try to book space ahead of China’s Lunar New Year shutdown.
Spot ocean freight on the main Asia-U.S. West Coast trade lane is running $1,557 per forty-foot equivalent unit (FEU) according to the Freightos Baltic Daily Index (SONAR: FBXD.CNAW). While down from a mid-January high of $1,600 per FEU, the index is at one of its best levels since October.
Similarly, spot ocean freight into the U.S. East Coast (SONAR: FBXD.CNAE) is at the highest level since September, running $2,955 per FEU.
The spot rate gains are coming as many manufacturers in China have shut down for the coming Lunar New Year celebration and are shipping out their remaining inventory. With some factories not expected to return to normal operations for up to a month, ocean carriers have been canceling more sailings between Asia and the U.S. to deal with the downturn in demand.
U.K.-based container shipping analyst PR News Service has reported at least 29 sailings between Asia and the U.S. West Coast that have been canceled this week through Feb. 17, totaling about 250,000 twenty-foot equivalent units (TEUs) in freight capacity.
That is an increase from the 24 canceled sailings PR News Service reported at the start of January.
Shawn Fox, president and owner of Swift Fox International Logistics, said the pre-Lunar New Year cancellations are butting up against strong demand from shippers to replenish stocks after the holidays. The upshot is that shippers are going to find space very tight due to the high number of void sailings during the quarter.
“It’s somewhat normal that before Chinese New Year that carrier space gets very tight,” Fox said. By the second week of January, “the number of shipments are three times what it was before,” Fox added.
“The problem is that (shippers) are not going to get it all out before New Year because the voids were announced late,” he added.
Data suggest a pickup in restocking among U.S. shippers. The seasonally adjusted inventory-to-sales ratio for U.S. retail trade was 1.43 in November, the lowest reading since May 2015, according to U.S. Census data. The ratio for wholesalers was 1.35, the lowest since April 2019. The National Retail Federation said holiday retail sales grew at 4.1% in December, which was at the high end of its forecast range.
Shipments coming into West Coast ports are also picking up steam going into the Lunar New Year. Weekly import shipments coming into Los Angeles are up 15% through Jan. 11 (SONAR: WCSTM.LAX). Seattle and Oakland ports are seeing gains of 43% and 16%, respectively, through the same period of time (SONAR: WCSTM.SEA, WCSTM.SFO).
As a result, importers with contracted rates are now facing two-week delays for getting their freight on a ship as ocean carriers decide they would rather take spot freight.
“Contract customers are getting rolled so that my freight gets on because the spot rate is so much higher,” Fox said.
The Phase One trade deal between the U.S. and China is also adding another challenge as shippers are taking advantage of the tariff reprieve to move more goods into the U.S., Fox said.
Shippers “are importing to replenish all the stuff that people bought at Christmas,” Fox said. “Now that there’s a trade deal settlement, there’s no ships.”