Short-term rates drop below long-term: Xeneta

Short-term rates on the main trade lane from China to the U.S. West Coast fell below the benchmark freight rate for long-term contracts in early June, according to the latest update from Xeneta.

"Everyone eyeing the US West Coast these days seems to focus on the labour negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) employer group. The current ILWU-PMA contract between 22,000 port workers and employers expires on July 1."

Terminal automation (more or less of it) is the central pain point to resolve this time around, the report said. 'Beyond that, record throughput at terminals and record freight rates for ocean shipping has long been the main challenge."

Since end-June 2021, short-term rates have climbed 46.5 percent from $5,304/FEU to $7,768. During the same period, long-term rates have zoomed 160 percent, from $3,070 to $7,981 by end-June 2022, the report said.

"The narrowing gap between the short and long term rates illustrates how US West Coast shippers have managed the risk that global supply chains are so full of right now."

Short-term rates are on a steady and declining trend since the peak in early March, a trend that also seems to have paused the rise in long-term rates. "While we await the signing of a new contract between ILWU and PMA, other aspects are also important when forecasting where rates are heading.

"Can U.S. retail sales keep up, despite the inflationary headwinds? Is any money left in consumer pockets for spending in the second half of 2022? When will congestion around all the largest US container ports begin to ease? And when will strained onshore supply chains catch a break?"

Questions waiting to be answered as we head to the start of H22022.

Congestion declines at LA/LB ports

There were 28 container ships backed up across Los Angeles/Long Beach ports as on July 21, 2022, according to data from Captain J. Kipling (Kip) Louttit, Executive Director, Marine Exchange of Southern California & Vessel Traffic Service, Los Angeles and Long Beach San Pedro, CA.

"The 28 container ships in the backup are 81 fewer than the record of 109 on January 9, 2022. Thus, we're down to less than 1/3 of the record backup."