WEBVTT
00:00:01.600 --> 00:00:08.960
Hi everybody, I'm Jude Levine, head of research at Fratos, and welcome to this week's episode of Container Bites.
00:00:09.199 --> 00:00:12.080
It'll be just me this week as Julia is on vacation.
00:00:12.240 --> 00:00:21.600
So if we start off with what's going on the latest in the trade war, last week President Trump and China Xi Jinping met for this much anticipated meeting.
00:00:21.679 --> 00:00:30.559
And that meeting did yield a two-month extension of the US-China trade agreement or trade truce, which went into effect last November.
00:00:30.800 --> 00:00:39.200
It also meant that the sides agreed to some mutual tariff reductions of about$30 billion of annual imports from each side.
00:00:39.359 --> 00:00:44.000
And there are also plans for two more meetings between the leaders between now and the end of the year.
00:00:44.159 --> 00:00:48.880
And with this extension, the agreement would expire in early January.
00:00:48.960 --> 00:00:50.880
So that's also kind of optimistic.
00:00:51.359 --> 00:00:54.560
Signs pointing to de-escalation.
00:00:54.960 --> 00:01:10.079
This probably also includes a postponement of the US$1 million port call fees for Chinese vessels or Chinese carriers calling ports in the U.S., although it hasn't been announced or included officially just yet.
00:01:10.319 --> 00:01:11.920
Why was it only two months?
00:01:12.079 --> 00:01:15.200
There had been reports that it was going to be possibly six months.
00:01:15.359 --> 00:01:16.719
It seems that the U.S.
00:01:16.879 --> 00:01:23.840
is asking China to fulfill some of the requirements or commitments in made in the earlier trade agreement to purchase certain U.S.
00:01:24.000 --> 00:01:25.840
agricultural goods which haven't been fulfilled yet.
00:01:26.000 --> 00:01:36.000
So that to me seems to say that there is expectations that, you know, once this sticking point is resolved, that there'll be a further extension as we get into early next year.
00:01:36.239 --> 00:01:42.000
So as we said, the sides will reduce tariffs on$30 billion of imports from their counterpart.
00:01:42.400 --> 00:01:47.840
Those will be reduced to kind of the baseline most favored nation levels.
00:01:48.480 --> 00:02:05.120
$30 billion is a lot, but in the big stream of the hundreds and billions of dollars of trade between the two sides, it's not super significant, but it's based on certain uh categories or certain product entries, about 80 product entries for the US, about 1,600 for China.
00:02:05.280 --> 00:02:08.560
For the US, the biggest component is for imports of toys.
00:02:08.719 --> 00:02:11.520
So if you're an importer of toys, this will be significant.
00:02:11.680 --> 00:02:12.960
These aren't in effect just yet.
00:02:13.039 --> 00:02:20.080
It requires whatever legislative steps or bureaucratic steps each side needs to take before this go into effect, but this was the agreement.
00:02:20.800 --> 00:02:26.719
Turning to um container rates, so on the Trans-Pacific, container rates ticked up again for U.S.
00:02:26.800 --> 00:02:29.599
West Coast last week to$8,400 per FU.
00:02:29.840 --> 00:02:31.199
That's a new high for this year.
00:02:31.439 --> 00:02:39.120
East Coast prices were level, but still at about$9,600, which is very elevated, only about$200 down from the peak in August.
00:02:39.280 --> 00:02:49.280
And as we said, as we've said here before, we had an early start to peak season back in May, but demand has stayed resilient, stayed strong through September, right up till the start of Golden Week now.
00:02:49.520 --> 00:03:03.759
And we're likely probably at the end of this uh peak as we get past Golden Week, maybe a little residual demand afterwards, but we should see lower volumes, lower demand afterwards, and see some easing of freight rates because of that.
00:03:03.919 --> 00:03:10.960
But even with demand cooling, we might not expect rates to cool or to ease or to fall too significantly too fast for a couple of reasons.
00:03:11.120 --> 00:03:15.680
One is carriers are blanking salines, which they always do around Golden Week when demand drops.
00:03:15.840 --> 00:03:20.240
They'll be reducing salines after Golden Week as well if volumes are falling.
00:03:20.639 --> 00:03:22.800
But we also have congestion.
00:03:22.879 --> 00:03:26.000
So congestion in the Far East remains really uh significant.
00:03:26.080 --> 00:03:28.479
It's a drain on available capacity.
00:03:28.800 --> 00:03:35.039
Some uh carriers are reducing allocations for contractor forwarders, kind of showing that space is still really tight.
00:03:35.360 --> 00:03:43.280
Sea intelligence estimates that globally port congestion is tying out more than 8% of global capacity, and that this is gonna take time to unwind.
00:03:43.360 --> 00:03:49.680
They estimate as much as 10 months because it's very easy to create a backlog, but it's much harder to clear that backlog.
00:03:49.919 --> 00:03:51.039
This is gonna take time.
00:03:51.280 --> 00:03:59.439
So that means that as we get past this peak season demand period, we normally have a lull in demand and then an increase again ahead of uh lunar new year.
00:03:59.520 --> 00:04:03.759
So now we have a couple of factors that are probably gonna keep rates, I don't think they'll stay where they are now.
00:04:03.840 --> 00:04:10.000
They'll probably ease, but they're gonna stay um elevated, certainly elevated to where they were before the war for a couple of reasons.
00:04:10.159 --> 00:04:18.000
One is this congestion that we spoke about just now, and the other is that we still have very elevated uh fuel costs because of the closure in the street of Hermu.
00:04:18.240 --> 00:04:29.199
So we'll likely see rates decrease, but we're probably gonna see a quite elevated floor, and we're gonna see uh prices climbing from that elevated floor once we get closer to Lunar New Year, which starts in the beginning of February.
00:04:29.279 --> 00:04:36.879
So probably already in January or even late December, we'll start to see um prices increase again for container rates.
00:04:37.120 --> 00:04:47.360
Um, finally, in the Trans-Pacific, was we know in August the Panama Canal, because of lower than uh normal rainfall from May to August, started taking steps to conserve water.
00:04:47.439 --> 00:04:53.759
They reduced one of the Neo-Panamax transits, which are really important for those long-haul vessels, especially Asia to US East Coast.
00:04:54.000 --> 00:05:06.399
They dropped that from 10, which is the normal daily transits, to nine, and they also reduced the maximum draft level to um to uh 48 feet um in August.
00:05:06.560 --> 00:05:17.839
Now they've restored that transit back to 10 and restored that foot of draft back to 49 because there's been better than expected uh rainfall since August and into through September.
00:05:17.920 --> 00:05:21.920
So that's a good sign in terms of conditions right now.
00:05:22.079 --> 00:05:31.439
Um the bigger problem or the bigger question is there's still expectations of a forming El Nino that will mean reduced rainfall for the rest of the rainy season, which normally lasts into January.
00:05:31.519 --> 00:05:40.319
And if that does materialize, then we could expect there to be our restrictions reinstated or maybe even stricter than what we've seen so far.
00:05:40.480 --> 00:05:45.439
If we compare to the last time we had low water levels back in 2023, we're in kind of better shape.
00:05:45.600 --> 00:05:51.279
Water levels in the uh lake that serves the canal are higher than they were there.
00:05:51.439 --> 00:05:55.360
The steps taken so far were not as strict as they were previously, and now they've been reversed.
00:05:55.439 --> 00:06:03.120
So those are good signs, but it still really depends on what happens in terms of the rest of the coming months and the rainy season and what happens with the El Niño.
00:06:03.680 --> 00:06:06.639
Turning to Asia Europe, container rates there continued to ease.
00:06:06.720 --> 00:06:14.560
And what we saw, we had an early start to peak season, same as Trans-Pacific, but rates peaked in July and started to ease since then and have continued to do so.
00:06:14.800 --> 00:06:21.680
Last week, uh rates fell to about$3,400 per FEU for North Europe and$3,600 to the Mediterranean.
00:06:21.839 --> 00:06:26.000
Um, carriers are announcing rate increases for late October.
00:06:26.079 --> 00:06:31.759
It's not entirely clear what those will take in terms of what the market conditions are looking like right now.
00:06:31.920 --> 00:06:36.639
Rates have been easing because carriers, because um peak season demand started easing.
00:06:36.800 --> 00:06:42.319
So we're seeing, you know, on the demand side, lower levels, lower volumes, and therefore less pressure on rates.
00:06:42.480 --> 00:06:52.480
We also have carriers returning some vessels to uh Red Sea transits, which effectively increases capacity because those vessels in the containers are moving faster through the system.
00:06:52.639 --> 00:06:56.480
And so those probably are combining to ease pressure on rates on this lane.
00:06:56.639 --> 00:07:02.399
However, if we compare rates now to a year ago, they're about 50% higher than they were last year this time.
00:07:02.480 --> 00:07:06.240
They've fallen about three, four thousand dollars from those peaks in July, but they're still quite elevated.
00:07:06.319 --> 00:07:07.680
And I think the same reason here.
00:07:07.920 --> 00:07:12.720
We have uh Far East congestion absorbing capacity for North Europe.
00:07:12.879 --> 00:07:16.639
We have congestion and North European hubs absorbing capacity for those lanes.
00:07:16.800 --> 00:07:20.000
And then, as we said, we also have elevated fuel costs.
00:07:20.079 --> 00:07:21.519
So we might see something similar here.
00:07:21.600 --> 00:07:27.920
We're seeing rates trending down, but they might stay higher than they were certainly before the war and maybe even before peak season.
00:07:28.000 --> 00:07:33.120
Um, but we'll see them increasing from that baseline once we get closer to a lunar new year.
00:07:33.279 --> 00:07:34.560
Okay, that's it for this week.
00:07:34.720 --> 00:07:36.959
Thanks for joining and hope to see you next time.
00:00:01.600 --> 00:00:08.960
Hi everybody, I'm Jude Levine, head of research at Fratos, and welcome to this week's episode of Container Bites.
00:00:09.199 --> 00:00:12.080
It'll be just me this week as Julia is on vacation.
00:00:12.240 --> 00:00:21.600
So if we start off with what's going on the latest in the trade war, last week President Trump and China Xi Jinping met for this much anticipated meeting.
00:00:21.679 --> 00:00:30.559
And that meeting did yield a two-month extension of the US-China trade agreement or trade truce, which went into effect last November.
00:00:30.800 --> 00:00:39.200
It also meant that the sides agreed to some mutual tariff reductions of about$30 billion of annual imports from each side.
00:00:39.359 --> 00:00:44.000
And there are also plans for two more meetings between the leaders between now and the end of the year.
00:00:44.159 --> 00:00:48.880
And with this extension, the agreement would expire in early January.
00:00:48.960 --> 00:00:50.880
So that's also kind of optimistic.
00:00:51.359 --> 00:00:54.560
Signs pointing to de-escalation.
00:00:54.960 --> 00:01:10.079
This probably also includes a postponement of the US$1 million port call fees for Chinese vessels or Chinese carriers calling ports in the U.S., although it hasn't been announced or included officially just yet.
00:01:10.319 --> 00:01:11.920
Why was it only two months?
00:01:12.079 --> 00:01:15.200
There had been reports that it was going to be possibly six months.
00:01:15.359 --> 00:01:16.719
It seems that the U.S.
00:01:16.879 --> 00:01:23.840
is asking China to fulfill some of the requirements or commitments in made in the earlier trade agreement to purchase certain U.S.
00:01:24.000 --> 00:01:25.840
agricultural goods which haven't been fulfilled yet.
00:01:26.000 --> 00:01:36.000
So that to me seems to say that there is expectations that, you know, once this sticking point is resolved, that there'll be a further extension as we get into early next year.
00:01:36.239 --> 00:01:42.000
So as we said, the sides will reduce tariffs on$30 billion of imports from their counterpart.
00:01:42.400 --> 00:01:47.840
Those will be reduced to kind of the baseline most favored nation levels.
00:01:48.480 --> 00:02:05.120
$30 billion is a lot, but in the big stream of the hundreds and billions of dollars of trade between the two sides, it's not super significant, but it's based on certain uh categories or certain product entries, about 80 product entries for the US, about 1,600 for China.
00:02:05.280 --> 00:02:08.560
For the US, the biggest component is for imports of toys.
00:02:08.719 --> 00:02:11.520
So if you're an importer of toys, this will be significant.
00:02:11.680 --> 00:02:12.960
These aren't in effect just yet.
00:02:13.039 --> 00:02:20.080
It requires whatever legislative steps or bureaucratic steps each side needs to take before this go into effect, but this was the agreement.
00:02:20.800 --> 00:02:26.719
Turning to um container rates, so on the Trans-Pacific, container rates ticked up again for U.S.
00:02:26.800 --> 00:02:29.599
West Coast last week to$8,400 per FU.
00:02:29.840 --> 00:02:31.199
That's a new high for this year.
00:02:31.439 --> 00:02:39.120
East Coast prices were level, but still at about$9,600, which is very elevated, only about$200 down from the peak in August.
00:02:39.280 --> 00:02:49.280
And as we said, as we've said here before, we had an early start to peak season back in May, but demand has stayed resilient, stayed strong through September, right up till the start of Golden Week now.
00:02:49.520 --> 00:03:03.759
And we're likely probably at the end of this uh peak as we get past Golden Week, maybe a little residual demand afterwards, but we should see lower volumes, lower demand afterwards, and see some easing of freight rates because of that.
00:03:03.919 --> 00:03:10.960
But even with demand cooling, we might not expect rates to cool or to ease or to fall too significantly too fast for a couple of reasons.
00:03:11.120 --> 00:03:15.680
One is carriers are blanking salines, which they always do around Golden Week when demand drops.
00:03:15.840 --> 00:03:20.240
They'll be reducing salines after Golden Week as well if volumes are falling.
00:03:20.639 --> 00:03:22.800
But we also have congestion.
00:03:22.879 --> 00:03:26.000
So congestion in the Far East remains really uh significant.
00:03:26.080 --> 00:03:28.479
It's a drain on available capacity.
00:03:28.800 --> 00:03:35.039
Some uh carriers are reducing allocations for contractor forwarders, kind of showing that space is still really tight.
00:03:35.360 --> 00:03:43.280
Sea intelligence estimates that globally port congestion is tying out more than 8% of global capacity, and that this is gonna take time to unwind.
00:03:43.360 --> 00:03:49.680
They estimate as much as 10 months because it's very easy to create a backlog, but it's much harder to clear that backlog.
00:03:49.919 --> 00:03:51.039
This is gonna take time.
00:03:51.280 --> 00:03:59.439
So that means that as we get past this peak season demand period, we normally have a lull in demand and then an increase again ahead of uh lunar new year.
00:03:59.520 --> 00:04:03.759
So now we have a couple of factors that are probably gonna keep rates, I don't think they'll stay where they are now.
00:04:03.840 --> 00:04:10.000
They'll probably ease, but they're gonna stay um elevated, certainly elevated to where they were before the war for a couple of reasons.
00:04:10.159 --> 00:04:18.000
One is this congestion that we spoke about just now, and the other is that we still have very elevated uh fuel costs because of the closure in the street of Hermu.
00:04:18.240 --> 00:04:29.199
So we'll likely see rates decrease, but we're probably gonna see a quite elevated floor, and we're gonna see uh prices climbing from that elevated floor once we get closer to Lunar New Year, which starts in the beginning of February.
00:04:29.279 --> 00:04:36.879
So probably already in January or even late December, we'll start to see um prices increase again for container rates.
00:04:37.120 --> 00:04:47.360
Um, finally, in the Trans-Pacific, was we know in August the Panama Canal, because of lower than uh normal rainfall from May to August, started taking steps to conserve water.
00:04:47.439 --> 00:04:53.759
They reduced one of the Neo-Panamax transits, which are really important for those long-haul vessels, especially Asia to US East Coast.
00:04:54.000 --> 00:05:06.399
They dropped that from 10, which is the normal daily transits, to nine, and they also reduced the maximum draft level to um to uh 48 feet um in August.
00:05:06.560 --> 00:05:17.839
Now they've restored that transit back to 10 and restored that foot of draft back to 49 because there's been better than expected uh rainfall since August and into through September.
00:05:17.920 --> 00:05:21.920
So that's a good sign in terms of conditions right now.
00:05:22.079 --> 00:05:31.439
Um the bigger problem or the bigger question is there's still expectations of a forming El Nino that will mean reduced rainfall for the rest of the rainy season, which normally lasts into January.
00:05:31.519 --> 00:05:40.319
And if that does materialize, then we could expect there to be our restrictions reinstated or maybe even stricter than what we've seen so far.
00:05:40.480 --> 00:05:45.439
If we compare to the last time we had low water levels back in 2023, we're in kind of better shape.
00:05:45.600 --> 00:05:51.279
Water levels in the uh lake that serves the canal are higher than they were there.
00:05:51.439 --> 00:05:55.360
The steps taken so far were not as strict as they were previously, and now they've been reversed.
00:05:55.439 --> 00:06:03.120
So those are good signs, but it still really depends on what happens in terms of the rest of the coming months and the rainy season and what happens with the El Niño.
00:06:03.680 --> 00:06:06.639
Turning to Asia Europe, container rates there continued to ease.
00:06:06.720 --> 00:06:14.560
And what we saw, we had an early start to peak season, same as Trans-Pacific, but rates peaked in July and started to ease since then and have continued to do so.
00:06:14.800 --> 00:06:21.680
Last week, uh rates fell to about$3,400 per FEU for North Europe and$3,600 to the Mediterranean.
00:06:21.839 --> 00:06:26.000
Um, carriers are announcing rate increases for late October.
00:06:26.079 --> 00:06:31.759
It's not entirely clear what those will take in terms of what the market conditions are looking like right now.
00:06:31.920 --> 00:06:36.639
Rates have been easing because carriers, because um peak season demand started easing.
00:06:36.800 --> 00:06:42.319
So we're seeing, you know, on the demand side, lower levels, lower volumes, and therefore less pressure on rates.
00:06:42.480 --> 00:06:52.480
We also have carriers returning some vessels to uh Red Sea transits, which effectively increases capacity because those vessels in the containers are moving faster through the system.
00:06:52.639 --> 00:06:56.480
And so those probably are combining to ease pressure on rates on this lane.
00:06:56.639 --> 00:07:02.399
However, if we compare rates now to a year ago, they're about 50% higher than they were last year this time.
00:07:02.480 --> 00:07:06.240
They've fallen about three, four thousand dollars from those peaks in July, but they're still quite elevated.
00:07:06.319 --> 00:07:07.680
And I think the same reason here.
00:07:07.920 --> 00:07:12.720
We have uh Far East congestion absorbing capacity for North Europe.
00:07:12.879 --> 00:07:16.639
We have congestion and North European hubs absorbing capacity for those lanes.
00:07:16.800 --> 00:07:20.000
And then, as we said, we also have elevated fuel costs.
00:07:20.079 --> 00:07:21.519
So we might see something similar here.
00:07:21.600 --> 00:07:27.920
We're seeing rates trending down, but they might stay higher than they were certainly before the war and maybe even before peak season.
00:07:28.000 --> 00:07:33.120
Um, but we'll see them increasing from that baseline once we get closer to a lunar new year.
00:07:33.279 --> 00:07:34.560
Okay, that's it for this week.
00:07:34.720 --> 00:07:36.959
Thanks for joining and hope to see you next time.
