Asia-East Coast spot ocean rates soar as West Coast port crisis spurs diversion

Spot market rates on sailings from Asia to the U.S. East Coast have spiked, as cargoes originally bound for West Coast ports have been diverted due to worsening congestion and ongoing labor unrest that have raised fears of a coastwide shutdown, U.K. consultancy Drewry said today.

In a report, Drewry said the spot rate for a 40-foot equivalent unit container (FEU) from Shanghai to New York is now at about $4,700 compared to about $4,000 per FEU in October (about the time labor-management tensions out West began to escalate). With another $600-per-FEU rate hike being implemented to coincide with the traffic surge typical of the pre-Lunar New Year period when Chinese factories close for 15 days, spot rates will exceed $5,000 per FEU for the first time in many years, Drewry said. The observance begins on Thursday this year.

The increase has dramatically widened the difference between spot rates on Asia-East Coast trade lanes and spot rates for boxes arriving at West Coast ports, Drewry said. The differential at this time is at about $2,700 per FEU, according to the firm's estimates.

The rate momentum is so strong that the 15 lines comprising the Transpacific Stabilization Agreement—which sets voluntary rate guildines for service contract talks on the Asian export sea trade—have revised the minimum rate levels to $3,800 from $3,500 per FEU, effective May 1. Drewry said the chances of hitting those levels in negotiations with beneficial cargo owners (BCO) "may not be wishful thinking" on the liners' part.

Simon Heaney, research director for Drewry's supply chain unit, said that about 150,000 20-foot equivalent units, or TEUs, were diverted from West to East last year due to a broad range of congestion problems that include the impact of the contract battle between the International Longshore & Warehouse Union (ILWU), which represents about 20,000 workers, and ship management, represented by the Pacific Maritime Association. Diverted cargo will not return to the West Coast en masse until the two sides reach a new accord and the ports begin the slow process of restoring normal operations, Heaney said.

Over the weekend, President Obama dispatched Secretary of Labor Thomas E. Perez to California to facilitate negotiations. Labor and management have been working without a contract since July 1, and since late October, the two sides have been trading insults and accusations. Management has alleged that ILWU imposed a deliberate work slowdown that has brought key ports like Los Angeles/Long Beach, Oakland, and Puget Sound to the brink of gridlock. Management suspended vessel loading and unloading operations at all ports over the President's Day weekend, saying they will not pay overtime wages for diminished productivity. The union has denied the allegations of a deliberate slowdown and said its members are ready to work. It has accused management of ratcheting up the crisis by suspending vessel operations for no acceptable reason.

Heaney said much of the diverted cargo would return to the West Coast once the labor dispute is resolved and container backlogs are cleared, a process that could take weeks. Over time, Asia-East Coast spot rates will come down, and the market will come back into balance, he said.

Heaney said the shift from West to East is not a new phenomenon, noting that container growth on Asia-East Coast lanes has outpaced Asia-to-West Coast growth by 2 percentage points over the past two years. The events of recent months have sent East Coast spot rates soaring and have created the present-day differential, he said.