2019 Peak Season: Real or Not?
Our Take on the Transpacific Freight Market
July is always an interesting month in the transpacific trade lane. The freight market usually starts to build after the middle of the month and moves into high gear somewhere around the first or second week of August. This peak shipping period lasts until the middle of October, when shipment volumes begin to return to normal levels.
This year, we’re seeing something different. Rather than demand increasing, the ocean carriers are reducing capacity and increasing rates by cancelling sailings. This is called a blank sailing and is used to artificially increase ocean rates on the spot freight market. From our discussions with carriers, it looks as though this tactic will continue to be used into August.
What’s different about this round of blank sailings is that the carriers have simultaneously filed peak season surcharges. Implementation has generally been postponed until the first of August so what happens in August is the concern. Many BCOs and NVOs signed fixed rate contracts this year at higher rate levels and with a peak season surcharge, fully expecting that carrier services would not be curtailed. Instead, the carriers have removed tens of thousands of TEUs from the market over the past month. We’re starting to receive notifications of additional blank sailings in August while carriers indicate they simultaneously intend to implement the peak season surcharges. The carriers are creating market demand by removing the service and capacity they sold the shipping public on in April, at time of contract signing.
Next year, I dare say that we might see importers and NVOs including language in their ocean service contracts to address this situation. For example, KPIs in the form of required sailings per week or month may be required, with penalty clauses if the carriers don’t meet their requirements.
It would be interesting to hear what others think about the carrier approach to the current market. How do you view this tactic? Given that there are fewer carriers and fewer alliances, one wonders if the FMC will weigh in on these issues. After all, the FMC approves the alliances and provides them with antitrust immunity. In the meantime, importers from Asia should be prepared for shipment delays and for tough negotiations around the implementation of peak season surcharges.