Ocean rates weaker after tariff-driven peak season

A number of feeder vessels headed in the area were observed on GPS altering their voyages after the Houthi announcement.

The Houthi blockade could have a significant impact on container shipping supply/demand globally if Asia-Saudi cargo now has to be shipped around Africa, said analyst Lars Jensen, as Asia-Mediterranean services will see substantial demand pressure.

The recent events could also force Maersk (OTC: AMKBY) and CMA CGM to alter new plans to resume scheduled services through the Red Sea, including calls at Saudi Arabia.

At the same time, the Saudis have diverted a significant share of pre-war oil flows away from the Strait of Hormuz via pipelines reaching Jeddah port in the Red Sea, Levine said, where volumes continue on by tankers passing Yemen on their way east.

Global crude oil prices are up 20% since weakening in early July, and bunker prices have risen 12%, erasing more than a month of decline, Levine said. One wild card: 50% tariffs on Canada announced by President Trump. Some analysts speculate that Ottawa could retaliate with tariffs on crude exports, which could raise prices at the pump for Americans since U.S. refiners are set up for Canada’s heavy crude, and not the light sweet intermediary extracted in west Texas.

“But even with fuel prices rising, container rates are easing – slightly – for the first time since April, as carriers add capacity to some lanes and an early unwind from an early peak season begins,” said Levine.

Spot rates declined slightly across the major east-west lanes with Asia-North America East Coast prices staying level, defying significant general rate increases and peak season surcharges set to take effect July 15.

“Daily rates so far this week show West Coast and Asia- Mediterranean prices continuing to slide,” Levine wrote. “That carriers decided against the mid-month hikes suggest that recent projections of cooling demand after a red hot, frontloaded, June and early July may be playing out now.”

Falling rates coincide with the arrival of extra ships sent to Far East hubs by carriers to accommodate surging demand. “The capacity aspect may explain the slight discrepancy between trans-Pacific West and East Coast rates, as more vessels were added to West Coast services,” said Levine.

Port congestion in Asia is also absorbing capacity, mitigating the downward pressure on spot rates. Surging volumes that spurred delays at major origin ports have worsened due to bad weather, including last week’s Typhoon Bavi.

Levine said that the storm temporarily shut down several major ports, leading to serious vessel bunching in Shanghai and Ningbo, and multi-day waits in Qingdao, and delays at other ports in eastern China, Taiwan, South Korea and the Philippines.

“Some carriers are omitting port calls and diverting volumes to alternatives in the region, which will then move on by transshipment and also contribute to delays,” he added.

Tariffs that expired July 24 helped fuel import frontloading, and the White House has announced new tariffs of 10%-12.5% on 60 countries linked to forced labor issues that could be implemented soon. The outlook for anti-dumping probes awaits findings by the U.S. Trade Representative, amid speculation that any tariffs in those cases won’t be deployed until after the U.S. midterm elections.

Read more articles by Stuart Chirls here.

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