SIMIC

Spot rates from Asia to the West Coast have fallen rapidly over the past month and are expected to approach the pre-pandemic level of US$2,000 per FEU soon, according to forwarders, reports IHS Media.

Industry sources are speculating that if rates drop below that benchmark, shipping lines will begin to lose money because their costs today are much higher than they were in 2019.

Bookings at major mainland China load ports have been dropping since July, reflecting softening demand, according to logistics software provider E2open.

In 2019 and earlier, carriers generally considered the break-even freight rate from North Asia to the West Coast to be about $1,600 per FEU. However, carriers' costs have risen sharply since then, including bunker fuel, wages, container lift-on/lift-off charges at the ports, and vessel chartering costs, all of which have been affected by inflationary pressures.

Non-vessel-operating common carriers (NVOs) say the rate indices lag by at least a week behind the actual rates their customers are securing in today's volatile environment in the trans-Pacific, with rates moving lower almost by the day.

Jon Monroe, who represents non-vessel-operating common carriers (NVOs), said his clients are booking shipments between $2,100 and $2,200 per FEU, and the rate of decline is accelerating. "Just in September, the West Coast rate dropped $1,456 from August," he said.

Another NVO who did not want to be identified said last Thursday he is seeing "sub-$2,000 rates."

On the same day, the Drewry World Container Index listed the Shanghai-Los Angeles spot rate at $3,283 per FEU, down 13 per cent from last week.

Although carriers and industry analysts say carriers' costs to operate vessels have risen hundreds of dollars per container, they also say it is difficult to quote a single number for all carriers because the cost factors vary widely among individual liners.

The alliance carriers in the trans-Pacific operate vessels of about 12,000-TEU capacity, which have much lower per-unit carrying costs than the smaller lines that entered the trade the past 18 months with vessels of about 3,000-TEU capacity.

Industry consultant Lars Jensen, CEO and partner at Vespucci Maritime and a JOC analyst, said the current environment in the trans-Pacific is much more diverse in terms of operational costs for carriers than it was pre-pandemic. "As a consequence, you will see an environment where some carriers will come under very severe pressure long before others," he said.

Some industry analysts say the carriers in the three alliances may choose to ride out the weakening current conditions and wait for the smaller lines to be priced out of the trans-Pacific, as they did under similar circumstances in 2010.