US retailers are entering the new year facing higher shipping rates not seen since the peak of the shipping season in August, as the eastbound trans-P
US retailers are entering the new year facing higher shipping rates not seen since the peak of the shipping season in August, as the eastbound trans-Pacific market strengthens amid the pre-Lunar New Year rush. Trans-Pacific carriers, having successfully raised spot rates by nearly $1,000 per forty-foot equivalent unit (FEU) on December 15, are pushing for a similar increase on January 1. If the increase goes through, rates to the West Coast would climb to around $6,000 per FEU, while East Coast rates could reach approximately $7,000 per FEU. Lunar New Year, which begins on January 29, marks the closure of many factories in Asia for a two-week holiday, prompting US importers to rush their cargoes onto the water before the shutdown.
As of the weekend, a number of major carriers had informed customers about the January 1 General Rate Increase (GRI) in the eastbound trans-Pacific market, and more are expected to follow by Wednesday, according to logistics forwarders.
Pre-Lunar New Year Demand and Market Resilience
The pre-Lunar New Year cargo rush is driving the sharp increase in spot rates seen over the past month. According to Platts, the West Coast spot rate has surged about 70% since late November, while the East Coast rate has risen by around 35%. Retailers are ramping up shipments to meet demand before many factories in Asia close for the holiday season. This surge in demand is in part due to an earlier-than-usual rush, as many US importers aim to have goods on the water before the factory closures begin in late January.
Christian Sur, Executive Vice President at logistics provider Unique Logistics International, commented that “the demand is there, at least right now.” Sur added that “carriers are very bullish,” indicating that carriers are optimistic about maintaining higher rates due to sustained demand during the lead-up to Lunar New Year.
This market resilience comes despite the earlier frontloading of cargo, as retailers sought to avoid potential disruptions from a threatened second strike by dockworkers on the East and Gulf coasts, as well as anticipated tariff hikes under President-elect Donald Trump. Bob Fredman, Principal at SF Global Logistics, noted that he was “surprised at the resilience of this market” given the earlier disruptions and challenges.
US Import Forecast for January: A Strong Start to the Year
Retailers are expecting a strong January in anticipation of the Lunar New Year, and the Global Port Tracker, published monthly by the National Retail Federation and Hackett Associates, forecasts a 12% increase in US imports compared to January 2024. The pre-Lunar New Year cargo rush is expected to continue driving higher spot rates, which have climbed significantly in the past month. Retailers, aware of the upcoming holiday shutdowns, are pushing their shipments through the East and Gulf coasts, despite the lingering concerns about potential disruptions from the International Longshoremen’s Association (ILA) strike.
Kurt McElroy, Executive Vice President at Kerry Apex, noted that retailers are not experiencing significant panic regarding the threatened ILA strike, which could begin on January 15. Despite the strike risk, McElroy said that many retailers are continuing to ship through East and Gulf coast ports because rerouting cargo to the West Coast would incur significantly higher costs.
Sur added, “No one is doing anything different whether the ILA strike happens or not,” suggesting that the tariff threat and strike risk are no longer major operational factors for retailers as the focus shifts to the timing of the Lunar New Year.
Disappearing ‘Bullet’ Rates and the Return of Spot Rates
Another indicator of the ongoing strength in the trans-Pacific shipping market is the disappearance of trade lane-specific special commodity rates and “bullet” rates, which were common earlier in the fall. These ad hoc rates, often used for urgent or special shipments, have largely evaporated as carriers now adhere to spot rates that have become the market standard.
McElroy explained that “carriers are letting the East Coast special commodity rates expire” and noted that while the West Coast still has some of these rates, they are now closer to the prevailing spot rates than before. Furthermore, most carriers are honoring commitments to ship under fixed-rate allocations in their 2024-25 service contracts, though once the minimum quantity commitments (MQCs) are met, retailers will be forced to pay the higher spot or freight-all-kinds (FAK) rates.
“There are no deals out there,” said McElroy. “If you need more space, you will have to pay the price.”
Despite a number of carriers signaling a potential General Rate Increase (GRI) on January 15, sources suggest that the likelihood of that rate increase sticking before cargo volumes drop sharply during the Lunar New Year lull is uncertain.
Impact on US Retailers and the Broader Economy
The pre-Lunar New Year rush is contributing to the spike in rates, but the broader trans-Pacific shipping market is demonstrating resilience as US retailers continue to face rising shipping costs into the new year. While the early concern over a potential strike or tariffs may have influenced retailers’ strategies, the primary driver of market activity now appears to be the upcoming Lunar New Year holiday in Asia. This demand surge is putting upward pressure on spot rates, especially on the West Coast, where rates have risen dramatically over the last few months.
The strength of the trans-Pacific market reflects a broader trend of increasing shipping costs for US importers. The sharp rate increases, combined with the costs associated with maintaining fixed-rate commitments and the disappearance of special commodity rates, will likely have significant implications for retailers, who will face higher logistics costs in the first quarter of 2025.
As the threat of a strike and the potential tariffs under the new administration become less of an immediate concern, all indicators point to continued upward pressure on spot rates in the coming weeks as the Lunar New Year approaches. While retailers have not yet adjusted their strategies dramatically, the situation remains fluid, and further rate hikes are likely as the shipping market continues to strengthen.
Original article source: “Trans-Pacific spot rates on the rise amid pre-Lunar New Year cargo bump,” published by Journal of Commerce on [December 30, 2024].