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Headhaul growth cools as the final details of next April’s schedule line-up have still to fall in place.
Asia-West Coast North America headhaul volumes shot up by 8.1% in October on a year-on-year basis, following a paltry 1.3% gain in the third quarter. This spurt of traffic had, however, little to do with any late peak season cargo rush but more with a backlog of shipments that should have moved under a Hanjin Bill of Lading during September and which finally found their way into the system in October. The monthly result has, nevertheless, pushed the 12-month rolling average growth rate back up to 3.6%, which exactly mirrors that for the Asia-ECNA trade.
Eastbound growth is likely to track lower in months to come: the post-recession recovery boom in US motor vehicle sales is over and inbound shipments of car parts from Asia is falling. In the meantime, volume growth in the westbound direction is now double that of the headhaul leg which is surprising given the strength of the dollar. With the Brazilian corn and soybean crops severely curtailed by drought earlier this year, Asian demand for US and Canadian supplies has soared in recent months.
If one averages out the tonnage provided over the last four months (August-November) to even out the effects of Hanjin’s collapse, the eastbound monthly slot supply is 1.8% lower than where it was a year ago. Attention is now heavily focused on what the landscape will look like next April. From what the Ocean Alliance and THE Alliance have released so far the three global groupings – including 2M - will be offering 29 loops between Asia and the USWC from next spring compared to the 24 which the existing four main partnerships market today. Ocean will boast 13 connections and THE will offer 11, leaving 2M very much the junior player with only five services.
However, there are several existing vessel-sharing agreements that fall outside any recognised alliance format in this trade and which make comparing like with like somewhat difficult. Adding in those non-aligned services and today there are 32 loops operating in the trade, but there are still a few pieces of the jigsaw to fall into place before next April.
Nine 13,000 teu former Hanjin vessels will be leased to 2M (six to Maersk and three to MSC). These units are unlikely to be placed on the Transpacific but their acquisition could free up tonnage elsewhere among the two carriers’ fleets which would allow them to boost the number of services they run to the West Coast. Already one has been announced starting this month – TP3/Sequoia – linking three Chinese ports with Long Beach. Just how many additional loops will materialise depends on the nature of any cooperation 2M may entertain with Hyundai Merchant Marine (HMM).
Korea Line Corp. (KLC) surprised everyone by being nominated ahead of HMM as the preferred bidder for Hanjin’s Asia/US business, including five 6,500 teu containerships. KLC were also allowed to bid for Hanjin’s 50% stake in Long Beach’s Pier T terminal but that interest has now been acquired by a joint offer made by MSC (which owns the remaining holding in Pier T through its stevedoring arm TIL) and HMM. Nevertheless, this further twist in the dismantling of Hanjin’s assets has not deterred KLC from launching its own Korea-USWC service, commencing in March next year.
Muddying the waters even more, rumours have surfaced suggesting Zim may be contemplating selling its deep-sea interests, although its participation on this route is marginal. At the same time, it remains to be seen what future plans PIL and Wan Hai have for their coverage of the Transpacific trade. In 2018, PIL will be taking delivery of eight 11,800 teu newbuilds which are believed to have been acquired with a view to strengthening the carrier’s presence in the North American market.
When news of Hanjin’s bankruptcy broke, eastbound spot rates climbed $500 to around $1,650 per 40ft. The October backlog when the carriers had already committed to a series of void sailings caused vessel utilisation factors to rise, with several ships sailing full out of Asia. Consequently, market rates moved closer to $1,950 but, when the slack season did eventually kick in during November, spot prices quickly receded. A planned $600 GRI for 1 December had no impact and going rates have now slipped below $1,400.
With Chinese New Year in 2017 falling early (28 January) it is believed some pre-CNY cargo could be on the water as early as the middle of December. With this in mind, some carriers opted for a GRI implementation date of 15 December. CMA CGM is aiming for a $600 GRI followed by another hike of $1,000 on 1 January. Even more ambitiously, Hapag-Lloyd has two GRIs on the table – one targeting a $1,200 increase from 15 December and another for a similar amount from 1 January.
Quite why some carriers have reverted to announcing huge rate increases when this strategy has so miserably failed them in the past is something of a mystery. Understandably, they are conscious of stoking the fires ahead of next year’s service contract rate negotiations and some lines are already informally letting it be known that they wish to see USWC BCO rates rise at least to $1,200 (equating to 50% more than what is paid today) and possibly back up to the long term historical level of $1,600. The dramatic wave of consolidation has unnerved shippers, who naturally need a sustainable and stable supply chain. Thus the lines may well be testing the strength of the spot market in the coming weeks to see how far they can indeed ramp up next year’s BCO rates.
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