U.S. line freight rates continue to fall! The off-season is not weak, and supply-side problems are highlighted

Recently, there has been a significant decline in freight rates in the U.S. shipping market, especially on the U.S.-West route. According to reports, the lowest freight rate has fallen below US $2,000/FEU (40-foot standard Container), while mainstream Carrier quotes are between US $2,400-2,500/FEU. In contrast, the FAK (Freight All Kinds) freight rate for the US East route remains in the US $4,600-4,800/FEU range, and the price is valid until December 14.

The contradiction between cargo volume growth and falling freight rates in November

Under normal circumstances, November is the traditional off-season for U.S. routes, because the goods for Christmas have been shipped out, and next year's goods have not yet begun to be shipped, resulting in a decrease in the overall cargo volume, thus putting pressure on freight rates. This November, however, was somewhat unusual. According to data, the volume of imports from Asia to the United States in November increased by 11.6% year-on-year, much higher than the previous NRF (National Retail Federation) estimate, and increased by 25.5% compared with the same period in 2019. This shows that despite the traditional off-season, the actual cargo volume is not small.

Specifically, the growth rate of cargo volume at the West American Terminal continues to be higher than that at the East American Terminal. Although there was a brief strike at the US East Terminal in early October, normal operations quickly resumed. However, negotiations between employer and management on terminal automation are progressing slowly, with unions hoping to overturn some previous agreements, while shipowners and terminals are reluctant to compromise. Trump's new labor secretary nominated is considered to be inclined to support union positions, which further complicates possible future strikes. Therefore, in order to avoid potential risks, many cargo owners choose to transport their goods through ports in the western United States, further promoting the growth of cargo volume in the region.

On the other hand, Gulf Coast ports are also growing very rapidly, showing strong momentum both year-over-year and compared to 2019. As for China's EXP, although there has been no obvious decline in the short term, from the long-term trend, its growth rate is lower than that of the whole Asian region, reflecting that the impact of the "de-Chinaization" strategy is gradually emerging.

Supply-side factor analysis

Since the absolute volume is performing well, why do freight rates continue to fall? The main reason lies in supply-side problems. According to the usual practice, after entering the fourth quarter, Carrier will implement a winter deployment plan, that is, to deal with the decline in cargo volume by systematically canceling some Voyage or cutting routes. However, such measures have not been implemented on a large scale this year. The reason behind this may be that Carrier is optimistic about the volume of goods in the fourth quarter, especially considering that Trump may implement a new tariff policy after his re-election, which will trigger a wave of early shipments. But in fact, the large-scale advance purchase in this intended did not happen, and customers remained relatively calm.

In addition, although the current freight rate has dropped from the beginning of the year, it is still higher than the same period last year, and major Carrier can still achieve profitability. Judging from the recently announced third-quarter financial report, the profits of major shipping companies have achieved substantial growth. Therefore, when the freight rate is acceptable, Carrier is naturally unwilling to withdraw its capacity easily.

Future Outlook

The Dec. 1 price hike attempt failed, and the next focus will be on Dec. 15. In view of the current lack of substantial progress in the trade union negotiations in the eastern United States, it is expected that more cargoes will be diverted to ports in the western United States from the middle of the month, which will help increase the cargo volume and freight rates in the region. But in the long run, if there are no external factors such as new tariff policies to stimulate a surge in demand, pressure on freight rates will become the norm amid oversupply of shipping capacity.