Trans-Pacific Vessel Demand Grows Ahead of July, August Tariff Deadlines

Blank sailings also have fallen, with less than 10% of services blanked along the trans-Pacific, according to Flexport's June 12 freight market update. Carriers are estimated to be at about 99% capacity at the end of June, compared with 75% capacity at the end of May.

Said DHL in its June ocean freight market update: “The tariff pause between China and US has led to a rapid rebound in ocean freight container demand on the China-US route, causing an early and intense peak season as importers rush to replenish inventories before the tariff window closes in August."

Evidence of this increased interest in the trans-Pacific trade lane is the reappearance of niche carriers traveling from Asia to the U.S. West Coast, particularly Los Angeles and Long Beach. Niche carriers, which consist of smaller vessels, appeared prominently during the height of the COVID-19 pandemic, when there was robust demand for ships between Asia and the U.S. West Coast.

These carriers “were only there to seize an opportunity that had presented itself in the form of unnaturally high freight rates and a very strong consumer demand for goods,” said a June 12 release from Sea Intelligence, a supply chain data analysis firm.

“We see a sharp ramp-up in capacity deployed by these new entrants in recent months, to 4.5% of the weekly deployed capacity on Asia-NAWC [North America West Coast]. This is back at the level that we saw during the height of the pandemic,” Sea Intelligence said. “This means that the current market conditions are such that these new entrants feel that there is an opportunity reminiscent of the global pandemic; and if history is anything to go by, we will see these carriers remove capacity as quickly as it was introduced, once the market conditions start to normalise.”

This additional capacity from the niche carriers could put pressure on spot rates, according to Nathan Strang, director of ocean freight and the U.S. Southwest for Flexport.

“As additional capacity comes in, as these extra loaders come in, we're going to start to see the market soften here very rapidly,” Strang said during the June 12 Flexport webinar. As a result, rates could soften heading into July, although peak season surcharges will remain in place for June for fixed contracts.

As the ocean freight market anticipates heightened interest ahead of tariff deadlines in July and August, the air cargo market is finding itself similarly buoyed.

Uncertainty “is fueling the short-term demand because [of] the 90-day tariff truce that ends very, very soon, [in] July and August, depending on which country you're speaking about. Of course, we could indeed see a rush of shipments ahead of that deadline as we approach the cargo-ready dates,” said Thomas Kempf, senior director of airfreight at Flexport.

Because of the volatility in the supply chain, “companies are using air freight for shipments that normally wouldn't fly at all,” Kempf continued. “That's something we can expect in the short term ... and in many cases, paying for air is still cheaper than risking those tariffs or delays via ocean.”

That sentiment was echoed by officials at Xeneta, an ocean and air freight rate benchmarking firm.

“Trade is not benefitting right now, airfreight is. Supply chains are a mess and with all this disruption, we’re seeing goods moving by airfreight that typically wouldn’t be flown. That’s due to the uncertainty,” said Niall van de Wouw, Xeneta’s chief airfreight officer, in a June 8 release. Xeneta also had indicated that global air cargo rates have been facing a softening trend recently and that current market demand may be more related to trade disruptions.

“Tariffs are of a different overall magnitude in terms of financial impact compared to the cost of using airfreight instead of ocean -- this is the clearest business case you can have right now for moving goods by air if you avoid tariffs as a result. This market environment gives, and it takes,” van de Wouw said.

To see how trade flows are shifting amid evolving tariff policies, Strang said to look at where the ocean carriers are announcing new trade lanes.

For instance, while some might question why vessel operator MSC has created a new trade lane from South Africa to the United States even amid higher tariff rates, Strang said to compare the difference in U.S. tariff rates between South Africa and China for that same product.

“You have to look at what the ocean freight rates are, if you can take advantage of a better rate out of a South Africa, and look at your total landed cost and the quality of the good is still there,” Strang said. “This is what ocean carriers are thinking about as they're watching you all negotiate with your new suppliers. ... Ocean carriers are looking to move their ships where you have demand. At the end of the day, they need to take your cargo. That's something that they're going to be looking for as they expand these trade lanes is, where are they seeing people manufacturing? As you see new routes coming online, they could pique your interest into maybe a different place” where competitors might be manufacturing.