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Ocean carriers cut trans-Pac services as blank sailings fail to stem rate slide

Mediterranean Shipping Co. Maersk, and CMA CGM are cutting three trans-Pacific services in response to a sharp drop in import demand and spot ocean freight rates.

The service changes, which amount to one post-Panamax service and two Panamax services, are not major capacity cuts and are likely to do little to prop up freight rates. But the moves demonstrate how fast carriers are pulling capacity as rates approach or fall below break-even levels.

2M Alliance members MSC and Maersk said last week in separate statements that their jointly run Sequoia/TP3 post-Panamax service will be suspended because of “significantly reduced demand” in the trans-Pacific. The Sequoia/TP3 service offers about 14,000 TEU in weekly capacity from Ningbo and Shanghai to Los Angeles.

The service will be merged into 2M’s 13,600-TEU Jaguar/TP2 service that calls Long Beach, Maersk said. Sea-Intelligence Maritime Analysis said the last sailing on the Sequoia/TP3 service, which was introduced in 2016, will be on the MSC Savona, which is scheduled to arrive in Los Angeles on Oct. 5.

Maersk also said two standalone services into the US East and Gulf coasts would be merged into one. The TP28 service, which the carrier debuted in 2022, would be merged into the TP20 service, which debuted in 2021, as of the final sailing of the Merkur Archipelago from Vietnam’s Vung Tau port on Oct. 13.

Calls at the ports of Norfolk, Charleston, and Houston on both services will be dropped, with the TP20 only calling New York-New Jersey and Mobile, Maersk said. Origin ports on the TP20 will include Jakarta, Vung Tau, Shanghai, and Ningbo. Both services use Panamax-size vessels of about 5,000 TEU.

Maersk said that consolidating services would offer better transit times for shippers and increase berth availability. It added that “as soon as cargo demand recovers, we will bring capacity back through relaunching TP3, TP28, upgrading of other services, and/or sailing extra-loaders.”

Separately, CMA CGM ended its Golden Gate Bridge service, which called the ports of Oakland and Seattle, according to Sea-Intelligence. The last sailing of the service, which offered about 8,500 TEU in weekly capacity, was on the CMA CGM Medea, which is currently berthed at Seattle.

Outside of the major ocean carriers, smaller lines have also been pulling ships from the trans-Pacific. Independent carrier CULines has ended a trans-Pacific express service that it jointly ran with Shanghai Jin Jiang Shipping since July 2021, after closing its TPN service in August, maritime consultancy Alphaliner said in a report. CULines has a second trans-Pacific express service that it still operates, Alphaliner said.

October capacity unchanged from a year ago

The service changes follow a series of blank sailings that carriers have laid out for October in a bid to cut capacity, but that have failed to halt a slide in spot freight rates. Sea-Intelligence said that ocean carriers as of last Friday planned to blank 48 planned voyages during the month. In comparison, carriers had only planned to blank 12 October voyages six weeks earlier, Sea-Intelligence said.

Those blank sailings are doing little to prop up spot ocean freight rates, which have slid 10 percent weekly since mid-August, according to a research report from investment bank Jeffries. Spot rates into the US West Coast are now hovering at $2,400 per FEU, close to the level where ships are only seeing break-even results.

Sea-Intelligence said the service cuts have mostly affected the surge capacity that was brought into the trans-Pacific amid high spot rates. Even with the service cuts, carriers will still have 1.56 million TEU of vessel space deployed in the trans-Pacific during October, essentially flat with totals from last year.

“With the blank sailings announced thus far, the carriers have merely reduced capacity down to the same level as we saw last year,” Sea-Intelligence said. “The relevant issue is the magnitude of capacity operated in the trade, and blank sailings might well be counteracted by larger vessels, new services, and possibly extra-loaders.”

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China COVID rules make deep cuts in Hong Kong cross-border container volumes

Hong Kong faces losing all its cross-border container traffic with Shenzhen and Guangdong Province if Chinese authorities continue to impose COVID-19 restrictions on trucking and feeder operations, the head of Hong Kong’s terminal operators’ group has warned.

Jessie Chung, chairwoman of the Hong Kong Container Terminal Operators’ Association, said the volume of containerized exports trucked from Guangdong Province for shipment through Hong Kong port has slumped since February when China imposed COVID-19 controls on trucking and barge operators. The association represents four of Hong Kong’s five terminal operators, including Hutchison’s Hongkong International Terminals, Cosco-HIT Terminals, Modern Terminals, and Goodman DP World.

“The situation worsened in June and July,” Chung told JOC.com Tuesday. She said the volume of export containers transported by cross-border truck to Kwai Chung container terminal fell 48 percent in June and 58 percent in July compared with a year earlier.

Hong Kong government figures show a year-on-year average monthly drop of 60 percent in total freight imports by truck from South China, to just 400,000 tons between February and June.

Cargo volumes moved to Hong Kong by barge from South China show an average monthly drop of 24 percent to about 3 million tons since January compared with last year.

“We have to liaise with Shenzhen and Guangdong authorities, otherwise we will lose all our cargo,” Chung said.

But Chinese authorities have rebuffed attempts by Hong Kong government officials for an agreement to ease restrictions on cross-border truckers and barge operators.

“There have been numerous meetings and plenty of emails and other communication on the cross-border trucking and barge operation issues,” Roberto Giannetta, chairman of the Hong Kong Liner Shipping Association, told JOC.com. “But in terms of progress, we can say there is zero improvement.”

No incentive for China to ease restrictions

Under the controls introduced in March, cross-border truck drivers are banned, while container-laden chassis can only be picked up and dropped off at designated Hong Kong-Shenzhen border crossings. Barge crews must also live on their vessels for extended periods without shore leave.

“Shenzhen has everything to gain by maintaining the existing obstacles — cargo flow through Hong Kong is being shifted to Shenzhen ports,” a senior shipping executive told JOC.com. “There is, therefore, very little motivation for them to ease restrictions that would restore smooth transport of containers through Hong Kong port.”

Chung pointed out the district government in Nansha, about 60 miles west of Hong Kong, has recently introduced a raft of incentives to encourage shippers to move cargo through Nansha, part of the Guangzhou port complex. These include cash bonuses for shippers who move into the district and to firms who increase freight volumes, especially reefer cargo.

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Cargo Shipowners Cancel Sailings as Global Trade Flips From Backlogs to Empty Containers

Dozens of sailings from Asia to U.S. ports are set to be canceled in October as deteriorating economic conditions weigh on demand to ship goods worldwide

Ocean carriers are canceling dozens of sailings on the world’s busiest routes during what is normally their peak season, the latest sign of the economic whiplash hitting companies as inflation weighs on global trade and consumer spending.

The October cancellations are a sharp reversal from just a few months ago, when scarce shipping space pushed freight rates higher and carriers’ profits to record levels. Last October, companies like Walmart Inc. and Home Depot Inc. were chartering their own ships to get around bottlenecks at ports to meet a surge in demand for imports.

Trans-Pacific shipping rates have plummeted roughly 75% from year-ago levels. The transportation industry is grappling with weaker demand as big retailers cancel orders with vendors and step up efforts to cut inventories. FedEx Corp. recently said it would cancel flights and park cargo planes because of a sharp drop in shipping volumes. On Thursday, Nike Inc. said it was sitting on 65% more inventory in North America than a year earlier and would resort to markdowns.

The erosion in global economic conditions, from the war in Ukraine to factory shutdowns in China, have dealt heavy blows to trade activity. The International Monetary Fund has cut its forecast for global growth in gross domestic product multiple times this year. Consumer prices are rising at the fastest rates in years in the U.S., countries in Europe and other parts of the world.

One response to the melting demand has been to reduce sailing trips. In September, container capacity offered by ship operators in the Pacific was down 13%, dropping the equivalent of 21 ships that can each move 8,000 containers in a single voyage, from a year earlier, according to shipping-data providers Xeneta and Sea-Intelligence. 

For the two weeks starting Oct. 3, a total of about 40 scheduled sailings to the U.S. West Coast from Asia and 21 sailings to the East Coast from Asia have been scrapped, according to the data companies as well as customer advisories viewed by The Wall Street Journal. Typically at this time of year, an average of two to four sailings a week are blanked, the industry’s term for canceled sailings.

Carriers also are increasingly canceling trips along key Asia-to-Europe routes, the data providers said.

“In the first week of October, one-third of previously announced capacity will be blanked and for the second week, it will be around half,” said Peter Sand, chief analyst at Xeneta. “The downturn pace in recent weeks has been very fast and it looks like carriers misread the low volumes of a nonexistent peak season.”

The period between late summer and early fall typically is the busiest time of year for the largest carriers, as retailers and other importers build inventories ahead of the holiday shopping season.

Daily freight rates now average $3,900 to move a single container across the Pacific, compared with$14,500 at the start of the year and more than $19,000 in 2021, according to the Freightos Baltic Index.

M editerranean Shipping Co., the world’s largest container carrier by capacity, has voided some sailings recently, including a six-ship service from China to Los Angeles and Long Beach.

The rotation, which MSC operated in alliance with A.P. Moller-Maersk A/S, was suspended “due to significantly reduced demand for shipments into the U.S. West Coast during the past weeks,” according to a customer notice posted Wednesday on MSC’s website. The suspension will remove nearly 12,000 containers a week in capacity from the trans-Pacific trade, and the action would help strengthen the transit times it offers, MSC said in its notice.

MSC declined to comment beyond the notice as did a Maersk spokesman. A Hapag-Lloyd AG spokesman said the company hasn’t canceled sailings as a result of weaker demand. Cosco Shipping Holding Co. and CMA CGM, two other major container operators, didn’t respond to requests for comment.

Some carriers are reluctant to share details on canceled sailings to avoid showing competitors what is happening in their network. Voyages can be scrapped because of port congestion, scheduling issues or falling demand.

Consumer spending on bulky items like furniture and appliances that are often imported into the U.S. has cooled in recent months, according to government data. Such items were in hot demand earlier in the pandemic as Americans spent more time at home and renovated their houses.

A  flotilla of new container ships under order will add capacity over the next two years, meaning that freight rates could come under more pressure as more ship space becomes available.

Ocean container capacity is slated to increase 4% this year and is expected to rise by 8.8% in 2023 and a further 9.7% in 2024, according to London-based shipping adviser Braemar PLC. Since early 2020 some 1,056 ships that can move about eight million boxes were ordered, compared with 688 vessels ordered from 2015 to 2019 that can move around five million boxes.

“The global economy has thrown a few curveballs this year, and our outlook on future demand is uncertain and tepid,” said Jonathan Roach, a container analyst at Braemar. “Overcapacity will likely become an issue from the middle of 2023 through to 2024 and potentially beyond.”

Overcapacity pushes operators to undercut each other, putting pressure on freight rates. Boxship operators fought deep losses for nearly a decade starting in 2008, which prompted consolidation in the industry. The top six ocean-freight carriers move more than 70% of all containers worldwide.

Freight rates on key shipping routes remain above prepandemic levels, and the largest operators have plenty of cash to weather a near-term economic downturn. The costs carriers face are rising, too. Bunker fuel prices, which have cooled since hitting records this summer, are above their late 2019 levels. Port operators are also charging more for ships to dock, passing along the higher energy prices they are facing to the carriers.

“The cost of electricity, particularly in Europe, is significant because the cranes and other heavy equipment run on electrical power,” said Tiemen Meester, chief operating officer for ports and terminals at DP World, a Dubai-based operator of terminals in ports worldwide.