Ocean Rates Skyrocket

For those of you who closely monitor rates, you have without question seen huge jumps in costs over the last six weeks consistently.  Large increases in rates causes harmful impacts to budgeting and cost of goods, and we want to take a brief moment to share some information relevant to what is driving these increases.

First, rates continue to increase this week.  According to global rate indexes, USEC rates ex Asia are up 32.1% from June 2019.  Meanwhile, USWC rates are up a staggering 94.6% from June 2019!  Last week, rates jumped 29.2% for West Coast destinations, and have now reached the highest point since 2010.  East Coast rates are jumped 18.9% to a reach their 32.1% elevation from the same time in 2019; east coast rates are at their highest since early 2018.

Rates have been on the rise since late April, driven by the combination of blank sailings by steamship lines colliding with spikes in import demands from US companies.  April, May, June and July historically are slower times for ocean transportation, volumes decrease, usually as much as 10%.  In turn, steamship lines schedule as much as 120 blank sailings per month in order to avoid deep losses for moving empty vessels, handle scheduled maintenance for vessels, and keep some stability in place for overall market costs.

This season, we are simply moving faster than expected in the recovery from COVID—19 according to steamship line executives.  Volumes were down 18.5% YOY leading into May, down 9.2% YTD for 2020.  Carriers did not anticipate such an early and strong surge in demand, so they say, thus increasing total blank sailing orders in May, June and possibly July.  Some shipments destined for Ports of Los Angeles and Long Beach are facing two plus weeks delay to catch a voyage due to the growing backlogs.

For the remainder of 2020, carriers are predicting a total decline of 7.6%, with an estimated increase in 2021 of 8.3% market growth.  For the moment, rates are extremely high.  Is this our peak season for 2020?  It’s possible that the massive surge will offset what is usually hitting the market in August or later, if so, rates will be on the decline from mid-July through Christmas.  However, there is little visibility into what major US retailers will have in terms of consumer spending and thus, restocking.  The best indicator will be carrier’s handling of blank sailings.  If we continue to see this volume of blank sailings, rates are likely to remain higher than normal.  Current blank sailing forecasts do appear to be cutting back and the current forecast from carriers looks to be about half the volume of sailing cuts compared to June announcements.

Stay Tuned.