Although the liner shipping industry is extremely volatile, shippers still can leverage data on annual patterns that impact supply and demand — such as peak season and national Chinese holidays that result in various blanked sailings — in order to ensure their goods move as efficiently as possible throughout the year.
Peak season typically starts sometime during the third quarter of the year as retailers look to stock up in preparation for holiday shoppers and usually dies down sometime around October.
The start of peak season is easy to recognize because spot rates rise, capacity gets tighter and there tends to be an increase in rolled cargo, which is cargo that could not be loaded onto the vessel it was scheduled to sail on because the vessel ran out of capacity.
The chart below illustrates container spot rates in the run up to peak season and throughout peak season for 2018, based on the composite readings of the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI), Drewry’s World Container Index (WCI) and the Freightos Baltic Index (FBX).
The SCFI measures container spot rates from Shanghai to 13 regions around the globe to give an overall reading; the WCI is a composite of container spot rates on eight major routes to and from the United States, Europe and Asia; and the FBX is a composite of container spot rates on 12 global routes between Asia, Europe, North America and South America.
For 2018, all three indexes showed how container spot rates were especially high in August and September. The increase in these overall indexes during the summer months also was fueled by rates on the China-to-U.S. trades skyrocketing due to shippers moving goods as quickly as possible from China to the United States before tariffs entered force.
On July 6, the U.S. implemented a 25 percent tariff on goods from China totaling $34 billion in annual import value; on Aug. 23, the U.S. implemented a second tranche of 25 percent tariffs on goods from China with an annual import of $16 billion; and on Sept. 24, the U.S. implemented tariffs on goods from China with an annual import value of $200 billion. The tariff on this third tranche of goods will total 10 percent until Jan. 1, when it will then increase to 25 percent.
After the first and second round of tariffs were issued by the United States, China immediately retaliated by implementing a 25 percent tariff on the same value amount of U.S. goods, and on Sept. 24, China issued 5 percent to 10 percent tariffs across $60 billion worth of U.S. goods.
Looking back at the 2017 peak season, the WCI and FBX both declined month-over-month in October after strong and steady rates throughout the summer. The SCFI is never published during the first week of October due to China’s National Day holiday. This year’s peak season already has dwindled, considering the composite reading for all three indexes has steadily declined over recent weeks, as illustrated in the charts below.
Although these indexes all have declined in recent weeks, container spot rates from Asia to North America continue to remain exceptionally strong. As of Sunday, the FBX showed that on the China/East Asia-to-North America East Coast trade, spot rates stood at $3,488 per FEU, down 0.7 percent from four weeks prior, but up 64.6 percent year-over-year.
On the China/East Asia-to-North America West Coast trade, the FBX showed that rates totaled $2,400 per FEU as of Sunday, up 2 percent from four weeks earlier and up 64.2 percent year-over-year.
In addition to ocean transport, shippers can turn to air transport to move their goods, which is much quicker than shipping by ocean but comes with a hefty price tag.
Freightos said in late September, “Air freight prices remain very stable. In fact, the only changes since July 12 have been China-Europe general rates dropping 20 cents through most of August (in line with factory closures in most of Europe) and China-U.S. general rates jumping 30 cents at the end of August.”
As of Sept. 20, the average general and express rates for air freight from China to the United States ranged between $3.20 per kilogram and $6 per kilogram, while the average general and express rates from China to Europe ranged between $2.80 per kilogram and $6 per kilogram and $1.60 per kilogram to $3 per kilogram from Europe to the United States.
Shippers also need to pay close attention to China’s National Day holiday each year on Oct. 1,when the founding of China is celebrated, as well as Chinese New Year.
The start of the Chinese New Year varies each calendar year, as illustrated in the chart below.
Factories and businesses across China tend to shut down in order to celebrate these two holidays, which leads to blanked sailings and less goods being shipped in the wake of these holidays.
China’s National Day holiday results in blanked sailings from China for roughly two weeks after Oct. 1, while on the rebound route back to China, the effects are usually felt a few weeks later.
The two charts below, constructed using data from BlueWater Reporting, illustrate withdrawn capacity on the China-North Europe and China-North America trades as a result of China’s National Day holiday in 2017 and 2018.
Meanwhile, Chinese New Year results in blanked sailings from China for roughly two weeks after the start of the new year, while on the rebound route back to China, the effects are usually felt a few weeks later.
The two charts below, which were constructed using data from BlueWater Reporting, illustrate withdrawn capacity on the China-North Europe and China-North America trades as a result of Chinese New Year in 2017 and 2018.
It’s extremely important for shippers to be aware of different transit times offered by liner services in order to make sure their shipments have been booked early enough in the run up to blanked sailing periods from these two Chinese holidays, but also when rates are more expensive during peak season, in order to potentially choose a longer transit time during the peak season to secure cheaper rates.
Silicon Valley-based freight forwarder Flexport said that in order for ocean shipments to arrive in time for winter holidays, they should be booked prior to the Oct. 1 celebration, especially if the goods are being shipped to the U.S. East Coast.
Now that peak season is wrapping up and shipments for the winter holidays should, in theory, have already been booked, in the coming months shippers will need to begin paying special attention to the 2019 Chinese New Year. The first day of the 2019 Chinese New Year will be Feb. 5. To prepare, Flexport recommends shippers book their transportation (especially ocean) at least three weeks prior to Chinese New Year.
Flexport also recommends shippers follow up closely with their suppliers regarding the cargo ready date, which is the day the cargo is expected to be available at the supplier or other named location, such as a warehouse, an airport terminal or a container yard. The cargo ready date tends to shift frequently in advance of Chinese New Year as factories are running on maximum capacity.
If multiple containers are being shipped, Flexport recommends shippers split them among several bills of lading. That way, if a shipment is rolled, it won’t impact all containers.
Flexport also recommends shippers consider air, especially if they have a strict deadline from a retailer or are running out of stock, but noted air capacity also can be tight right before Chinese New Year.
Shippers also should consider longer transit times as services with the quickest transits are more likely to be overbooked; therefore, cargo on board services with longer transits is less likely to be rolled to the following week, Flexport explained.
“If your cargo is traveling inland, another option is to be flexible about the port of discharge,” the freight forwarder added. “This is also likely to result in a slightly longer transit time, but will allow for more options when choosing a sailing.”
© 2018 BlueWater Reporting (www.BlueWaterReporting.com) Used with permission