This week:
- Following US-China trade deal, trans-Pacific ocean bookings surge, capacity crunch expected
- Despite increase in imports, excess capacity expected to keep US trucking, drayage rates down
- Canada Post pauses contract talks with union, leading to increased likelihood of strike on Thursday
- Revised tax on China tonnage will be less disruptive, but still expensive for the shipping industry
China-US Ocean Bookings Up After Trade Deal, Capacity Crunch Expected
Not long after last Monday’s White House announcement of a trade deal that temporarily lowers tariff rates, ocean bookings from China to the US shot up by 50% for one prominent carrier. Even though there was a recent increase in blank sailings into US ports, some industry stakeholders now say a surge in imports will likely cause capacity issues on eastbound trans-Pacific voyages.
President Donald Trump’s administration announced last Monday it had reached an agreement with China that pauses the new US reciprocal tariff policy for 90 days. Tariff rates on imports from China had risen to 145%, but the trade deal temporarily lowers the duties to 30%. Speaking at a Q1 earnings call on Wednesday, Hapag-Lloyd CEO Rolf Habben Jansen told analysts that the carrier was dealing with “a real surge in bookings” after the announcement.
“We have seen over the last couple of days that bookings have been up more than 50% compared to what we saw over the last four weeks, and they are also up in double-digit percentages compared to the period before the tariffs,” Habben Jansen said.
Meanwhile, multiple supply chain stakeholders are predicting that the rapid increase in eastbound trans-Pacific bookings will soon lead to a capacity crunch, higher spot rates, and new surcharges.
“It’s clear it will be a mad rush to get capacity,” Jason Cook, managing director at Ardent Global Logistics, told the Journal of Commerce (JoC). Cook noted that Ardent customers were prebooking well ahead of time. “Every day will count this week towards getting the booking plan and anticipated allocations with carriers,” Cook said.
Nerijus Poskus, head of ocean procurement for Flexport, also anticipates a post-trade deal run on capacity. “I think we’re going to have a very significant peak season,” Poskus told the JoC.
“For the first three weeks of May, 34% of capacity in the trans-Pacific has been taken out through blank sailings and service removals,” Poskus said. He expects much of that volume to now flood the market, but re-injecting capacity will be a challenge.
“The issue is a lot of these ships have been deployed on other trade lanes,” Poskus said. “They are not just sitting and waiting. Shifting back capacity to the (trans-Pacific) will not be as easy as it seems and… it will take more than four weeks for any meaningful capacity to be injected back.”
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US Truckload, Drayage Rates Not Expected to Rise Amid Surge in Imports
Although the influx of US imports from China is already pushing up ocean spot rates and causing capacity concerns, industry experts don’t expect these price hikes to spill over into the land-based drayage and truckload markets. A glut of trucking capacity is likely to keep rates from rising, according to stakeholders who spoke to JoC Senior Editor William B. Cassidy.
“Right now, we don’t see enough capacity exits to lead us to believe that (truckload) rates are going to be higher,” Sean Dehan, vice president of corporate strategy and mergers and acquisitions at Truckstop, told Cassidy on Friday. Dehan anticipates this stability will hold even with more cargo from China arriving over the next three months.
Truckstop, a spot market load-matching and trucking technology firm, predicts increased interaction between the spot truckload and drayage sectors. “Drayage drivers could effectively go into power-only mode,” Dehan said, suggesting the drivers might use their tractors for over-the-road spot market hauls if local import volumes aren’t sufficient.
According to Dehan and other industry observers, trucking capacity remains readily available. Avery Vise, vice president of trucking for FTR Transportation Intelligence, told the JoC there is still about 35% more over-the-road truckload capacity available today than in 2019. While recent months have seen upticks in freight activity, these are largely attributed to front-loaded US imports ahead of the April 2 launch of Trump’s reciprocal tariff policy.
Canada Post Pauses Union Negotiations as Potential Strike Looms This Week
Canada Post has halted contract negotiations with the Canadian Union of Postal Workers (CUPW), increasing the likelihood of a strike as early as this Thursday, May 22.
The government-owned postal carrier announced the pause last Tuesday in a statement released to the media. Citing a lack of “meaningful progress” in the talks, Canada Post asked for the break to prepare more comprehensive proposals to advance the negotiations. However, the carrier is warning customers that they may not reach a deal in time.
“We had hoped a new collective agreement would be reached by this point, but without new agreements, there is a possibility of a labor disruption on or after May 22,” Canada Post said. In a separate statement issued last month, the carrier advised Canada’s business community to seek alternate parcel carriers for continuity’s sake.
May 22 is the expiration date for the current collective agreements between the two parties. Weekend delivery remains a sticking point in the negotiations. Canada Post wants to hire new part-time staff for weekend work, while CUPW insists that current full-time employees should handle it. The union briefly went on strike last December over the issue, before the Canadian government’s labor relations board forced a return to work.
Despite negotiations resuming in late April, both sides appear to remain far apart. Canada Post has accused the union of refusing to make any concessions. However, in a recent update to union members, CUPW National President Jan Simpson countered that the carrier’s demands are also largely unchanged.
“Throughout the entire bargaining process, Canada Post has refused to take responsibility for the financial situation it finds itself in,” Simpson said. “They have also ignored our offer to use existing collective agreement language to allow for weekend delivery.”
Analysts: Revised US Tax on Chinese Tonnage is Less Disruptive, Still Costly
The revised US plan to tax Chinese tonnage released last month will be less disruptive to the shipping industry than what was proposed in February, but it will still significantly increase costs. That’s the takeaway from industry analysts quoted in a recent JoC editorial.
The US Trade Representative (USTR) initially proposed the tax as a US port entry fee for all vessels made in China or with significant ties to the nation. Under the revised plan, industry observers expect affected container lines to incur costs of approximately $1 million per voyage, instead of $1 to $1.5 million per port call.
According to maritime analyst Lars Jensen, the USTR’s initial proposal could have cost the shipping industry an estimated $24 billion annually. Multiple stakeholders immediately objected to this plan. Agriculture exporters warned of carriers passing on additional costs, while smaller ports feared losing services if fees were assessed at each port call. Meanwhile, major carriers engaged in behind-the-scenes lobbying. Some shipping executives are now breathing a sigh of relief.
“It’s definitely a vast improvement over the first version,” Stuart Sandlin, Hapag-Lloyd’s North America president, told the JoC. Sandlin said the original proposal would have cost the carrier nearly $90 million weekly, a figure that is now “dramatically less.”
