The combination of reduced imports from China and new fuel regulations effective January 1, 2020 could have significant impact on container shipping options in the 4th quarter of 2019.
Ocean carriers have already announced reduced sailing schedules in recent weeks and there is speculation these "blank sailings" could increase in the fourth quarter. There are basically two reasons for this according to industry commentators.
First, imports to and from the U.S/China markets have shown downward trends as a result of the trade war. The third quarter saw U.S. West Coast imports down by 1% and East Coast up by only 3.7 year over year, well below previous peak season numbers.. SeaInteligence Maritime Consulting is projecting Asia/West Coast traffic be down 4% in the fourth quarter compared to last year, the largest reduction in the last 5 years. East Coast capacity is expected to be up .5%. The average year of year growth to the East Coast has been 9.1% for the last 5 years.
The second factor in play is unique. Since the new low sulphur fuel requirements take effect January 1st, carriers are scrambling to either take ships out of service to prep and refuel in Q4 or modify vessels to be outfitted with scrubbers to comply with emission requirements. This could cause shipping lines to reduce voyages even more, especially if capacity forecasts are reduced. Fuel costs are definitely going up and will likely be passed on in the form of bunker surcharges. There is also concern being expressed about a possible limited supply of the new fuel grade.
This is something shippers in the U.S. Asia trade lane need to consider as they make supply chain plans for the 4th quarter. Carriers would like nothing better to use reduced capacity to increase rates. And, depending on the actual number of reduced sailings, this could raise the prospect of tightening space availability.
This situation is worth keeping an eye on as the balance of cargo and shipping capacity is in some state of flux. Consulting with your suppliers or customers in Asia is suggested, especially China. We will do our best to keep you advised of ocean freight market conditions as this develops.