Panama Spread Widens In Last Week For Pre-Tariff China - East Coast Sailings

A China COSCO vessel enters the Port of Oakland. 

The Panama spread (FBX.PANA) widened last night when Freightos released new container rates for this week: rates from China to the American East Coast (FBX.CNAE) climbed to $3,683, while rates to the West Coast (FBX.CNAW) fell slightly to $2,527. This week the Panama spread expanded to $1,156, reflecting the canal tolls, increased fuel costs on a longer haul, and the relative balances of freight demand and steamship capacity on each of those lanes.

(Chart: FreightWaves SONAR)

Both Transpacific lanes have stayed elevated well past the deadline for any Asian retail exports to find their way into U.S. supply chain networks in time for the holiday shopping season. Continued robust freight demand this late into Q4 helps us see the effect that tariff pull-forward is having on container rates. We can assume a 32-34 transit time from China to the East Coast (excepting the rare 28 day transit)—that means that this week is really the last week for Chinese shippers to get their freight onto the vessel in time to beat the new 25 percent tariffs which will be imposed on Chinese goods beginning January 1. 

"We're going start to see East Coast volume coming in at end of [this] week, and the last week of November volume will be pretty serious," said Henry Byers, Director of Pricing and Partnerships at Steam Logistics, an international freight forwarder based in Chattanooga.

We expect the China - East Coast lane to peak this week, as the ships leaving in the later part of next week will likely not be able to discharge their cargo in Savannah before January 1. After that, shippers hoping to beat the tariffs will give up on the East Coast and focus their attention on the West Coast. While capacity added last month to the West Coast lane let the steamship lines absorb more demand without upward rate pressure, it remains to be see whether conditions remain stable into the first week of December.

Our view is that the mostly likely outcome headed toward the end of the year is that the Panama spread will collapse as Asian shippers turn from the East Coast lane—putting downward pressure on prices—and snap up whatever capacity they can get on vessels headed for the West Coast, pulling those rates up. 

After the New Year, things get more complicated. We're hearing contradictory data—many expect a significant Q1 hangover from pre-Chinese New Year freight that's already been shipped, while other transportation service providers have said conversations with their customers have made them optimistic about the demand side for at least the first half of 2019. 

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