Latest / Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros / Episode #35: The June Peak Shift and the $6,000 Rate Breach

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Episode #35: The June Peak Shift and the $6,000 Rate Breach · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:00
  SPEAKER_00: Hi there and welcome to today's episode of Container Bites, your bite size session on the latest in freight.
• 0:06
  SPEAKER_00: I am Julia Frowine, and as always joined by resident freight exercise, Judah Levine.
• 0:10
  SPEAKER_00: Hey Judah, how are you?
• 0:11
  SPEAKER_01: I'm good.
• 0:12
  SPEAKER_01: How are you good?
• 0:12
  SPEAKER_00: I'm good.
• 0:13
  SPEAKER_00: Actually, it's my birthday today.
• 0:14
  SPEAKER_01: Oh, happy birthday.
• 0:15
  SPEAKER_01: I didn't know that.
• 0:17
  SPEAKER_00: Thank you.
• 0:17
  SPEAKER_00: Thank you.
• 0:18
  SPEAKER_00: Hopefully it'll bring good news for all our listeners in the world of freight.
• 0:21
  SPEAKER_00: All right, let's get to it.
• 0:23
  SPEAKER_00: So for another consecutive week, there are again escalations in the Middle East.
• 0:27
  SPEAKER_00: First, there were some exchanges of fire between Iran and Israel, and just now we saw exchanges between US and Iran.
• 0:34
  SPEAKER_00: What, if anything, does this mean for the freight market?
• 0:36
  SPEAKER_01: Yeah, so for the freight market, it hasn't meant all that much.
• 0:40
  SPEAKER_01: So for you know, the container market directly going to the Gulf states or even for air cargo, um, alternatives are already set up for the oceanside and air.
• 0:49
  SPEAKER_01: We haven't seen any real um airspace closures or anything like that.
• 0:53
  SPEAKER_01: So the story really is as long as the street of Hormuz remains closed, it's impacting freight markets more broadly through higher oil costs and then higher fuel costs, and that hasn't changed.
• 1:04
  SPEAKER_01: So maybe what changed from this is maybe it pushes back the horizon of when there is kind of a negotiated end to this and the strait will open.
• 1:12
  SPEAKER_01: Although, from hearing from the White House is that there's uh negotiations are making progress, or yeah, that an agreement is going to be arrived at any day now.
• 1:20
  SPEAKER_01: Um, but it's possible that this is pushing things further back.
• 1:23
  SPEAKER_01: There was a threat by the IRGC during the um kind of exchanges with Israel that they would close the Bab el-Mandeb street.
• 1:32
  SPEAKER_01: So have the Houthis start firing on ships again and passing vessels through through the Red Sea.
• 1:38
  SPEAKER_01: That likewise, I mean, it hasn't come to pass.
• 1:40
  SPEAKER_01: There haven't really been attacks there since October.
• 1:43
  SPEAKER_01: But even if there were for the container market, the vast majority of container traffic is still diverting away.
• 1:49
  SPEAKER_01: Some of the carriers who had started going back kind of pulled back those efforts once the war started at the end of February.
• 1:56
  SPEAKER_01: Um, so there's only very minimal container traffic, at least for kind of the the big alliances going through there anyway.
• 2:01
  SPEAKER_01: So same here it wouldn't have the biggest impact.
• 2:04
  SPEAKER_00: So the recent changes in the Iran war aren't really impacting our container rates, but they are climbing fast on what's clearly now an early start to the ocean peak season.
• 2:13
  SPEAKER_00: So what are the rates doing and what's driving that?
• 2:16
  SPEAKER_01: Yeah, so I would say that the the recent developments aren't impacting anything further, but we're still having kind of higher fuel costs and therefore relatively higher container rates and much higher uh air cargo rates.
• 2:28
  SPEAKER_01: Uh but yes, it's not impacting them directly right now.
• 2:31
  SPEAKER_01: So if we start with the Trans-Pacific, yeah, we're seeing an early start to peak season.
• 2:35
  SPEAKER_01: There's certainly a big increase in demand now, early June, which is earlier uh than usual.
• 2:41
  SPEAKER_01: We started maybe started seeing increases even in May.
• 2:44
  SPEAKER_01: And for the Trans-Pacific, I think it's being driven by several things.
• 2:48
  SPEAKER_01: One is the tariff deadline is at the end of July.
• 2:51
  SPEAKER_01: So that's when the Section 122 tariffs, which are set at global globally at 10%, will expire.
• 2:57
  SPEAKER_01: As we discussed last week, the White House is working hard to replace these by other means by the time before Section 122 expires.
• 3:08
  SPEAKER_01: Those tariffs could be higher than what they are now, higher than 10%.
• 3:12
  SPEAKER_01: Um, and they're certainly not, the way has certainly not done introducing what there will be after that date.
• 3:17
  SPEAKER_01: So it's possible that tariffs will be higher than than they are now.
• 3:20
  SPEAKER_01: Probably not significantly higher, but it's certainly possible that some shippers are pulling forward ahead of that tariff deadline.
• 3:26
  SPEAKER_01: I think as we discussed last time as well, for big um shippers that have contracts with uh ocean carriers, their fuel costs are adjusted on a quarterly basis.
• 3:37
  SPEAKER_01: So they're about to face much higher fuel costs than they were even since the war started, because most of their fuel costs were coming through those BAFs, the uh bunker adjustment factors, which is going to come into effect in July as well.
• 3:48
  SPEAKER_01: So some of those big shippers are you know pulling forward demand and that's leaving less space for the spot market and pushing and pushing rates up.
• 3:55
  SPEAKER_01: And then the other factor is that there are reports that manufacturers in the Far East have reported or let their customers know that they're about to increase prices due to increased costs since the start of the war, and then that we're seeing importers pull forward demand uh in terms of that, so they're not gonna face higher uh costs later on in the summer.
• 4:16
  SPEAKER_01: Whatever the drivers are, we're certainly seeing this reflected in volumes and in estimations of what the rest of the summer or the rest of the year is gonna look like.
• 4:25
  SPEAKER_01: So the National Retail Federation and their US Ocean Import Volume Report.
• 4:29
  SPEAKER_01: Last month they had said the peak was gonna come in in July, and now this month their report they're saying the peak is gonna come in June, and already in July we'll start to see uh volumes start coming down and continue to cool through September.
• 4:40
  SPEAKER_01: So that kind of shows that the expectations, at least now, are that you know the orders are coming at their peak right now.
• 4:47
  SPEAKER_01: They'll be strong-ish through the beginning of July and then start to cool, and that means that there is front loading, that the volumes that are coming now are coming kind of at the expense of what we're seeing later in the year.
• 4:58
  SPEAKER_01: In terms of what this is doing for rates, we had June 1st, so we saw I had GRIs and peak season surcharges all pushed through, and those for now have taken about$1,600 per container increase to the West Coast.
• 5:11
  SPEAKER_01: Now rates are up to about$4,800 per FEU to the East Coast.
• 5:16
  SPEAKER_01: Rates increased$1,300 last week.
• 5:19
  SPEAKER_01: That's a 25% increase, and rates are above$6,000 per FEU.
• 5:23
  SPEAKER_01: These spikes are the sharpest one-week increase since we had that sudden tariff surge last uh June.
• 5:29
  SPEAKER_01: Um, although in that case rates had pushed even higher, about$2,000 per container.
• 5:33
  SPEAKER_01: Last year they started to fall very quickly, they didn't last through mid-June.
• 5:37
  SPEAKER_01: This year there are additional increases announced for mid-June.
• 5:40
  SPEAKER_01: It's very possible that they will take, although probably for July we'll start to see rates come down a little bit.
• 5:44
  SPEAKER_00: Okay, um, what about Asia Europe?
• 5:46
  SPEAKER_00: Is it the same story there?
• 5:47
  SPEAKER_01: A similar story.
• 5:48
  SPEAKER_01: So we have the same early start to peak season.
• 5:51
  SPEAKER_01: We have the same, some of the same drivers in terms of uh increasing fuel costs for contracted shippers and the producer price increases coming.
• 5:59
  SPEAKER_01: Um, we don't have the trade war factor, but we do have other issues.
• 6:02
  SPEAKER_01: One is there's congestion in European hubs where there has been for a long time, and so shippers don't want to face delays later in the year when it's more critical to get goods and rather face them now.
• 6:12
  SPEAKER_01: And they're also facing longer lead times because of the Red Sea.
• 6:15
  SPEAKER_01: So Asia, Europe would normally go through the Suez Canal.
• 6:18
  SPEAKER_01: They're facing longer lead times by going around the south of Africa, so that's a factor there as well.
• 6:23
  SPEAKER_01: There also started to be reports of congestion in the Far East, which would be an impact for all these lanes, meaning starting sooner because uh expectations of delays.
• 6:32
  SPEAKER_01: And for rates, we're seeing something similar, about a thousand dollar increase for both lanes, both to North Europe and the Mediterranean.
• 6:40
  SPEAKER_01: Last week that pushed rates up to$4,000 per FEU to North Europe and$5,500 to the Mediterranean.
• 6:46
  SPEAKER_01: These levels already surpassed their peak season highs last year, and there's also been strong year-on-year volume growth on this lane as opposed to the uh Trans-Pacific, which let's say overall for the quarter has been about flat.
• 6:58
  SPEAKER_01: Mediterranean prices are approaching levels that we last saw in 2024 in the lead up to Lunar New Year.
• 7:04
  SPEAKER_01: And as a reminder, in that year, the big story was Red Sea diversions absorbing uh capacity.
• 7:09
  SPEAKER_01: We've had fleet growth since then, which has kind of mitigated this.
• 7:12
  SPEAKER_01: Here, too, the expectations are that mid-month GRIs, meaning just in a few days, are gonna push rates up even higher, other types of uh rate introductions.
• 7:20
  SPEAKER_01: Um, but again, it's possible that that those will be the peak in July, we're already start seeing rates start to come down.
• 7:25
  SPEAKER_00: Okay, so moving on to air cargo for a little bit.
• 7:27
  SPEAKER_00: It's been a little more than a year since the US cancelled its DeMimus exemption, which as we know drove a sharp drop in e-commerce entering the US by air.
• 7:36
  SPEAKER_00: So now the EU is had to do the same.
• 7:38
  SPEAKER_00: Do we think it will be a similar story there?
• 7:40
  SPEAKER_01: Yeah, so if we start with the story in the US, the US cancelled De Minimus back in May.
• 7:46
  SPEAKER_01: There was a very sharp drop in uh e-commerce volumes moving by air because of the, you know, kind of utilizing De Minimus for that business model.
• 7:55
  SPEAKER_01: But already a few months after the Dinos introduction, e-commerce volumes had kind of not recovered back to where they were, but had rebounded from how sharply they have dropped.
• 8:04
  SPEAKER_01: And they really haven't recovered by some measures back to where they were in terms of Trans-Pacific uh e-commerce going by air, but there's still a significant factor.
• 8:13
  SPEAKER_01: So, you know, some speculation that they were just gonna disappear from using air because it wouldn't make sense anymore, and that hasn't been the case, but we're not seeing kind of the surging growth that we had in the many months when this first started back in like 2023 until the de minimis changes.
• 8:28
  SPEAKER_01: But data from Avian shows that if we look at Q1 volumes for 2026, e-commerce volumes were 11% lower than they were in Q1 2025.
• 8:36
  SPEAKER_01: So there's definitely you know a contraction, but they still accounted for 13% of all Q1 air cargo imports to the US as compared to 16% last year.
• 8:46
  SPEAKER_01: So it's still a considerable chunk.
• 8:47
  SPEAKER_01: So we had a drop, a kind of a recovery, and remaining a factor.
• 8:51
  SPEAKER_01: And I think that's what the expectations are for Europe.
• 8:55
  SPEAKER_01: So they're introducing this flat fee.
• 8:57
  SPEAKER_01: It's not exactly the same as you know being subject to all the different uh duties that they would be subject to, but it is going to be a barrier.
• 9:04
  SPEAKER_01: But expectations are that we're not gonna see as sharp sharp a drop because the reasons that e-commerce kind of rebounded, if not completely recovered on on the Trans-Pacific, is that the platforms have kind of adjusted their strategies and learned how to kind of mitigate that exposure and still enjoy the speed of air cargo to make this e-commerce make sense.
• 9:24
  SPEAKER_01: So that's probably what we're gonna see there.
• 9:26
  SPEAKER_01: On both lanes, though, a very interesting trend is that whereas e-commerce had been the big driver of growth for the last few years, now we're seeing uh high-tech goods being more and more of a factor.
• 9:38
  SPEAKER_01: So, because of this big AI boom and the demand for AI-related hardware and data centers and things like that, we're seeing a big increase in high-tech shipments.
• 9:50
  SPEAKER_01: To the US, there was a 70% year-on-year increase in high-tech air cargo imports in Q1, according to Avian, and an 11% overall increase in air cargo imports to the US, even though we know e-commerce is shrinking.
• 10:01
  SPEAKER_01: So it's really AI that we keep hearing about in terms of the big driver of growth in air cargo, just when the expectations were, oh, we're gonna start to see slowing growth because of these changes to rules that were enabling e-commerce.
• 10:12
  SPEAKER_00: Okay, all right, makes sense.
• 10:13
  SPEAKER_00: Interesting.
• 10:14
  SPEAKER_00: Um, that's all we have time for today.
• 10:16
  SPEAKER_00: Thank you, Judah.
• 10:17
  SPEAKER_00: If you enjoyed the session, please help celebrate my birthday.
• 10:19
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• 10:23
  SPEAKER_00: Thank you for listening and have a great day.
• 10:25
  SPEAKER_01: Thank you.
• 10:26
  SPEAKER_01: Happy birthday.
• 10:27
  SPEAKER_00: Thank you.