Drewry: Carriers underestimated US tariff hangover

Drewry: Carriers underestimated US tariff hangover

In the aftermath of the threatened tariffs on Chinese goods, container shipments from Asia to West Coast North America have fallen as the market readjusts to slower volumes and prices.

At the end of 2018, eastbound spot freight rates were at a six-year peak but available PIERS data for the first three months of 2019 show that Asia to US West Coast volumes have declined approximately 3% year-on-year.

Shippers had prioritised the West Coast as the quickest way to beat the deadline and market consultant Drewry reported that it was “always likely to suffer the most from a tariff hangover”.

The company estimated that 2019’s eastbound Asia-WCNA trade will struggle to get halfway to 2018’s 6% increase, clouded by uncertainty surrounding ongoing China-US trade talks and a mild slowdown in the US economy.

Drewry has anticipated that it is unlikely there will be a repeat of the front loading of so much cargo, at least not on the same scale as 2018, as the effect of President Trump’s trillion-dollar tax cut works its way out of the system.

A reduction of inventories in the US and eastbound shipments from Asia to North America in general are expected to grow at a significantly reduced pace this year.

Carriers cancelled several eastbound sailings in February and March in anticipation of the dramatic slowdown in the first quarter of 2019 to ensure capacity was kept below the levels of 2018.

Despite this, Drewry estimated that headhaul utilisation slipped to 80% in February – the lowest in two years – and subsequently spot rates between Shanghai to Los Angeles have lost around 30% of their value since the start of the year.

It was thought carriers might be able to secure some modest increase in revenue from their BCO contracts but now they are looking into securing some agreement to a floating BAF arrangement within those contracts.

This is to try and help to recover some of the additional costs associated with the premium carriers will have to pay for low sulphur fuel oil towards the end of 2019.

An agreement between Zim and the 2M alliance was extended to now cover the West coast as well as the East and the Israeli carrier is now aboard the TP8/orient and TP9/Maple services with some port omissions.

In mid-March, the 2M Alliance deployed the largest ever containership to serve at the US, the 19,200 teu MSC Eloane, which called at Los Angeles on a trial basis.

It is unclear whether this trial will lead to a more permanent relocation of similar sized ships as carriers are unlikely to be attracted by lengthy stays in port without a sufficient rise in port productivity.