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Tensions between container lines and some US importers and forwarders are building as tight capacity management and a surge in Asia-US spot rates are drawing accusations that carriers are artificially propping up rates with two dozen blank sailings scheduled from early June to early August.
With cargo forecasting likely to remain uncertain into the peak season, and reports of rolled cargo mounting, some container lines concede they may overreach when it comes to cancelling sailings, but say they are prepared to reintroduce capacity quickly should imports suddenly pick up.
Shippers and carriers agree that last week’s spike in eastbound trans-Pacific spot rates was caused by aggressive capacity management, but where shipper sources see an orchestrated effort to push rates higher, carriers deny any attempt to manipulate pricing through blank sailings.
Furthermore, carriers warn that unless retailers provide more guidance as to purchase orders for holiday season merchandise, continued volatility in cargo volumes and spot rates is possible.
Spot rates spike past two weeks
US imports from Asia plunged 18.5 percent in May after declining 1.7 percent in April and 18.3 percent in March, according to PIERS. Carrier sources said that with all arrows pointing down due to the economic devastation caused by the coronavirus disease 2019 (COVID-19), the prudent action to take was to cancel sailings for May and June.
While conceding that blank sailings were a “critical factor” in pushing spot rates higher when imports from Asia unexpectedly spiked in late May and early June, the decisions to cancel the sailings had been made three to five weeks earlier. Estimates of how much capacity has been cut below current demand in the eastbound trans-Pacific range as high as 10 percent.
Carriers prepared to reintroduce capacity as needed
Given the widespread uncertainty among carriers and their customers as to import volumes this spring, carriers likely blanked more sailings than was necessary, knowing they could reinstate some sailings if needed.
Carriers, in fact, have reinstated several sailings that had been blanked earlier. Another option for handling an unexpected spike in demand is to deploy single-voyage extra-loaders, although carriers haven’t deployed any sweeper ships yet this spring.
Cargo owners and shippers could face continued space constrictions on vessels leaving Asia throughout the summer. It has been stated that carriers are only releasing space to shippers according to their agreed allocation or on past utilization performance, and any urgent cargo is being charged a premium.
If volumes continue to increase but carriers do not respond with capacity addition, it could cause problems for shippers. Retailers that have year-long contracts will be able to maintain their lower contracted rates each week only for their minimum quantity commitment.
Space is filling quickly on vessels leaving Asia, and carriers are not guaranteeing shippers that named accounts will get on board at the contract rate, which means that if a shipment is urgent, the customer must pay a premium.
Capacity constraints forecast through June
Tight capacity conditions are expected to remain at least through June, but volumes from Hong Kong and China improved significantly during the last two weeks and currently stand at about 75 to 80 percent of the normal volume for this time of year.
Space is especially tight on Pacific Southwest services from Asia to Los Angeles-Long Beach, which accounts for the larger percentage increases in spot rates to the West Coast than on the all-water services to the East Coast. Given the uncertainty involving tariffs and the US-China trade war, cargo owners want to get their shipments in as quickly as possible.
FMC Rule Giving Contract Filing Relief to Carriers Takes Effect
Container lines will no longer be required to file ‘essential terms’ of contracts with cargo owners with the Federal Maritime Commission (FMC) under a rule formally adopted by the regulatory body, providing an exemption to the Shipping Act of 1984.
The ruling on the World Shipping Council’s (WSC) petition codifies a 4-1 vote in December 2019 when the Commission found that not publishing contractual details — such as port pairs, volume commitments, and the type of cargo — would not harm market competition.
The WSC asked for parity with non-vessel-operating common carriers, which received a similar exemption from the FMC in July 2018. The new rule will be effective upon publication in the Federal Register.
The FMC estimated that removing the essential-terms publication requirement would eliminate 41,048 man hours to process the data, generating nearly $2 million in savings per year.
Final rule is a compromise
The WSC wanted an exemption from filing all portions of service contracts with shippers, but the FMC agreed only to abolish the publication of essential terms.
Concerns expressed by some shippers during an earlier comment period prior to the December vote centered on contracts not being honoured and the potential for being hit with additional fees. However, the FMC does not consider contractual disputes regarding service contracts within its jurisdiction, giving shippers and carriers the choice to take their disputes to the courts or seek mediation offered by the agency.
NITL wrote that the compromise decision by the FMC in December 2019 was sufficient to address its members' concerns.
Major U.S. Ports Status Updates
Ports of Seattle & Tacoma – The ports are observing a planned work stop during the first shift on June 19 and will resume operations second shift. Recently, cleaning efforts have been bolstered again to continue to protect against COVID-19.
Port of Los Angeles/Long Beach – The ports are observing a planned work stop during the first shift on June 19 and will resume operations second shift. Overall cargo volumes at the Port of Los Angeles have decreased 18.6% compared to 2019, and volumes in May 2020 have dropped 29.8% compared to May 2019. However, cargo is flowing and marine terminals are open and continue to operate as usual.
Port of Houston – Both Bayport and Barbour’s Cut Terminals are open and operating normally this week.
Port of New York/New Jersey – For the month of April, the Port of New York and New Jersey’s rail business continues to demonstrate growth as the total rail volume, January through April, is 6.0 percent greater than in the same period in 2019. From a month to month comparison however, rail volume decreased 0.8 percent last April to April 2020. Imports for the month of April totalled a 4.7 percent decrease in comparison to April 2019. Exports for the month of April totalled a 10.2 percent decrease in TEU volume in comparison to April 2019. All terminals are open and operating normally this week.
Port of Baltimore - The Maryland Port Administration has named William P. Doyle, a former federal maritime commissioner, the new executive director who will begin overseeing the Port of Baltimore in July. Baltimore has remained the only US port not to see a decline in volumes to and from Asia during the COVID-19 pandemic and resulting recession, despite closing the Seagirt Marine Terminal four times in March due to a decline in overall volumes. All terminals are open for normal operations this week.
Port of Virginia - The Port of Norfolk had 59 blank sailings scheduled from April through July, but anticipates stabilization to follow in balance of the year. The Port is open for normal operations this week, closed Saturday and Sunday.
North Carolina Ports – The NC Ports continue with capital improvement plans for dock improvements, updating its terminal operating system and improvements to its gates. All terminals are open for normal operations this week, closed Saturday and Sunday.
South Carolina Ports - SC Ports in Charleston, Greer and Dillon are operating normally for gates and vessels.
Port of Jacksonville - All terminals are open for normal operations this week.
Port of Georgia - The port is scheduled to have 25 blank sailings in June, or about 16 percent of the port’s vessel calls. All terminals are open for normal operations this week. The Port Director says they have been working with local land developers to increase warehouse space for the anticipated uptick in demand for space. The port is open for normal operations this week.
USMCA Interim Implementation Instructions
U.S. Customs and Border Protection (CBP) has posted updated interim implementation instructions for the United States Mexico Canada Agreement (USMCA). This replaces the interim implementation guide that was published April 20, 2020. The interim instructions found here are not legally binding and are for informational purposes only. CBP will issue final implementation instructions prior to the date that USMCA will enter into force.
The North American Free Trade Agreement (NAFTA) remains in force until USMCA is implemented. The anticipated implementation date for USMCA is July 1, 2020.
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