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More blank sailings spell volatility for trans-Pacific
Source
American Shipper
Post Date
10/22/2018

Trans-Pacific carriers’ accelerated use of blank, or canceled, sailings ss a warning to shippers of increased volatility amid spot rates holding at five-year highs, but a steep decline in volume is expected in January.

Carriers in the eastbound Pacific blanked two to three times as many sailings in the third quarter compared with the past two years. Carriers newfound ability to balance supply and demand on relatively short notice could keep rates at five-year highs through December.

A post-Golden Week bump in cargo volume, and full vessels leaving Asia. “Cargo is heavy, especially out of Shanghai and Ningbo,” said Kevin Krause, vice president ocean services at SEKO Transportation. The extensive cargo rolling of recent months has subsided, so importers are not paying premiums to secure space. Rather, bookings at spot-rate levels are made with the understanding that the shipment will leave on the first available voyage, which may not be this week, he added.

A tumultuous summer
A tumultuous summer and autumn marked by front-loading of holiday shipments to get ahead of the first two rounds of tariffs imposed by the Trump administration has kept year-over-year container volumes 3 to 9 percent higher in June through September than last year, according to PIERS, a JOC.com sister product. However, the main driver of higher spot rates was the ability of carriers, individually and within their alliances, to better match supply with demand. Carriers susped three vessel strings to the West Coast, reducing capacity about 6 percent, and one weekly string to the East Coast, reducing capacity about 1.3 percent. Ad-hoc blank sailings in the third quarter, which are scheduled to continue through December, also supported higher spot rates.

“The peak season trans-Pacific spot rates went up due to hard capacity cuts rather than being the result of front loading of head-haul volumes before the imping trade tariffs,” SeaIntelligence Consulting stated in its Sunday Spotlight. Carriers in the third quarter blanked 17 voyages from Asia to North America. That compared with two blank sailings in the third quarter of 2017 and eight in the third quarter of 2016. Carriers blanked nine sailings to the East Coast, compared with two in last year’s third quater and three in 2016, SeaIntel reported. The blank sailings eliminated 139,200 TEU, or 3.4 percent of total capacity to the West Coast, and 71,100 TEU, or 3.3 percent, to the East Coast, according to SeaIntel.

“Reviewing the [third quarter 2018] blank sailings, we can see that the carriers have instituted significant capacity cuts, especially on the trans-Pacific trade, where the number of blank sailings and the percentage of capacity reduced in [third quarter 2018] have been the highest since 2012,” SeaIntel stated.

Carriers did not wait until the last minute to announce the blank sailings. Rather, they have foreed their moves in order to give beneficial cargo owners (BCOs) and non-vessel operating common carriers (NVOs) sufficient time to shift their bookings, Krause said. “They’re doing a better job than in the past, ” he said.

Imports have been consistently higher each month than last year, but since import volumes stayed in a manageable range of 387,000 to 425,000 TEU each month, carriers, BCOs, and NVOs have been able to strategically plan their supply chains, although at higher spot rate levels, he said. PIERS numbers show that year over year, imports in June were 3.2 percent higher, in July were 9 percent higher, in August were 2 percent higher, and in September were 8.7 percent higher than in the same months last year.

The early peak season, which began this year in July, is stressing ports, terminal operators, railroads, and motor carriers. Cargo volumes are expected to remain elevated at least into November, so the entire supply chain must respond to greater demands. The Northwest Seaport Alliance of Seattle and Tacoma reported Wednesday that increasing vessel sizes have correlated into increasing train sizes. “Earlier in the season both Class 1s may have experienced increased delays with outbound departures due to various reasons (crew shortages, late arrival of power, or unavailability of rail cars). However, rail service providers have shown tremous improvement recently, and no further delays are foreed.”

At least one terminal in the port complex stepped up this week by announcing a “hoot” shift (3 a.m.-8 a.m.) to handle a cargo surge. Under the coastwide longshore contract, the five-hour shift commands eight hours of pay at a higher rate, so terminals only institute hoot shifts when absolutely necessary.

While it is still too early to predict if the traditional slack months of November and December will be busier than usual due to another round of tariff hikes scheduled to take effect on Jan. 1, SeaIntel said BCOs should at least prepare for the possibility that the spot rates could remain high through December before ping in January. “With the tariffs set to increase from 10 percent to 25 percent on Jan. 1, the slack season should allow for greater flexibility in shifting volumes around. This could lead to a tight [fourth quarter], and even greater slack than normal in [the first quarter],” SeaIntel stated in this week’s editorial.


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