Transpacific container rates look poised to rise again as omicron cases spike in China, California

Transpacific container rates look poised to rise again as omicron cases spike in China, California

Summary

Transpacific container rates look poised to rise again as omicron cases spike in China, California

An easing of rates between China and the US could be the calm before the storm.

The recent decline in transpacific freight rates could be short-lived, with a fresh outbreak of the COVID variant omicron hitting Ningbo, China -- one of the world's largest container ports.

Transpacific freight rates have dropped to their lowest levels in nearly six months despite a renewed threat to container shipments posed by a fresh COVID-19 outbreak in the city and the fast-spreading omicron variant.

Freight rates between Asia and the US West Coast fell to $12,873 (€11,935) per 40-ft equivalent unit (FEU) on Thursday, their lowest point since July, according to the Freightos Baltic Index (FBX).

Any increase in freight rates spells bad news for the frozen seafood sector, particularly for firms moving product to and from Asia and the United States.

The outbreak at a Ningbo garment factory comes at a particularly bad time for Chinese processors, which are rushing to make shipments ahead of factory closures for Chinese New Year on Feb. 1.

Shipping giants AP Moller-Maersk and CMA CGM both reported no major impact as of yet, but companies fear strict implementation of China's "zero-COVID" policy might result in the port being closed, which would add further chaos to the huge volumes of frozen fish coming in and out of Chinese ports.

The spread of omicron in China is likely to further hamper container movement over the coming weeks, according to analysts at Fearnley Securities, limiting global throughput and bring more volatility to rates in the short-term.

Of additional concern is the spread of the new virus variant among port workers in Los Angeles and Long Beach -- the two busiest ports on the West Coast of the United States.

The ports already are struggling with congestion and backlogs, according to Judah Levine, research head at Freightos.

"Any additional slowdown due to Covid will likely exacerbate the congestion and backlog, and continue to keep pressure on container rates as well," he said.

Although freight rates have eased in recent weeks, they remain at historically high levels.

Rates from Asia to the US East Coast dropped to $16,018 (€14,177) per feu, while those from China to northern Europe were stable at around $14,240 (€12,604) per feu, according to FBX.

There is unlikely to be any major change until shoreside operations in China and the US are able to cope with higher container volumes, said Peter Sand, chief analyst at Xeneta.