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Container Bytes #50: The Trump-Xi Trade Truce and Panama Canal Restriction Reversals · Container Bytes: Weekly Ocean & Air Freight Intelligence for Supply Chain Pros

• 0:01
  SPEAKER_00: Hi everybody, I'm Jude Levine, head of research at Fratos, and welcome to this week's episode of Container Bites.
• 0:09
  SPEAKER_00: It'll be just me this week as Julia is on vacation.
• 0:12
  SPEAKER_00: So if we start off with what's going on the latest in the trade war, last week President Trump and China Xi Jinping met for this much anticipated meeting.
• 0:21
  SPEAKER_00: And that meeting did yield a two-month extension of the US-China trade agreement or trade truce, which went into effect last November.
• 0:30
  SPEAKER_00: It also meant that the sides agreed to some mutual tariff reductions of about$30 billion of annual imports from each side.
• 0:39
  SPEAKER_00: And there are also plans for two more meetings between the leaders between now and the end of the year.
• 0:44
  SPEAKER_00: And with this extension, the agreement would expire in early January.
• 0:48
  SPEAKER_00: So that's also kind of optimistic.
• 0:51
  SPEAKER_00: Signs pointing to de-escalation.
• 0:54
  SPEAKER_00: This probably also includes a postponement of the US$1 million port call fees for Chinese vessels or Chinese carriers calling ports in the U.S., although it hasn't been announced or included officially just yet.
• 1:10
  SPEAKER_00: Why was it only two months?
• 1:12
  SPEAKER_00: There had been reports that it was going to be possibly six months.
• 1:15
  SPEAKER_00: It seems that the U.S.
• 1:16
  SPEAKER_00: is asking China to fulfill some of the requirements or commitments in made in the earlier trade agreement to purchase certain U.S.
• 1:24
  SPEAKER_00: agricultural goods which haven't been fulfilled yet.
• 1:26
  SPEAKER_00: So that to me seems to say that there is expectations that, you know, once this sticking point is resolved, that there'll be a further extension as we get into early next year.
• 1:36
  SPEAKER_00: So as we said, the sides will reduce tariffs on$30 billion of imports from their counterpart.
• 1:42
  SPEAKER_00: Those will be reduced to kind of the baseline most favored nation levels.
• 1:48
  SPEAKER_00: $30 billion is a lot, but in the big stream of the hundreds and billions of dollars of trade between the two sides, it's not super significant, but it's based on certain uh categories or certain product entries, about 80 product entries for the US, about 1,600 for China.
• 2:05
  SPEAKER_00: For the US, the biggest component is for imports of toys.
• 2:08
  SPEAKER_00: So if you're an importer of toys, this will be significant.
• 2:11
  SPEAKER_00: These aren't in effect just yet.
• 2:13
  SPEAKER_00: It requires whatever legislative steps or bureaucratic steps each side needs to take before this go into effect, but this was the agreement.
• 2:20
  SPEAKER_00: Turning to um container rates, so on the Trans-Pacific, container rates ticked up again for U.S.
• 2:26
  SPEAKER_00: West Coast last week to$8,400 per FU.
• 2:29
  SPEAKER_00: That's a new high for this year.
• 2:31
  SPEAKER_00: East Coast prices were level, but still at about$9,600, which is very elevated, only about$200 down from the peak in August.
• 2:39
  SPEAKER_00: And as we said, as we've said here before, we had an early start to peak season back in May, but demand has stayed resilient, stayed strong through September, right up till the start of Golden Week now.
• 2:49
  SPEAKER_00: And we're likely probably at the end of this uh peak as we get past Golden Week, maybe a little residual demand afterwards, but we should see lower volumes, lower demand afterwards, and see some easing of freight rates because of that.
• 3:03
  SPEAKER_00: But even with demand cooling, we might not expect rates to cool or to ease or to fall too significantly too fast for a couple of reasons.
• 3:11
  SPEAKER_00: One is carriers are blanking salines, which they always do around Golden Week when demand drops.
• 3:15
  SPEAKER_00: They'll be reducing salines after Golden Week as well if volumes are falling.
• 3:20
  SPEAKER_00: But we also have congestion.
• 3:22
  SPEAKER_00: So congestion in the Far East remains really uh significant.
• 3:26
  SPEAKER_00: It's a drain on available capacity.
• 3:28
  SPEAKER_00: Some uh carriers are reducing allocations for contractor forwarders, kind of showing that space is still really tight.
• 3:35
  SPEAKER_00: Sea intelligence estimates that globally port congestion is tying out more than 8% of global capacity, and that this is gonna take time to unwind.
• 3:43
  SPEAKER_00: They estimate as much as 10 months because it's very easy to create a backlog, but it's much harder to clear that backlog.
• 3:49
  SPEAKER_00: This is gonna take time.
• 3:51
  SPEAKER_00: So that means that as we get past this peak season demand period, we normally have a lull in demand and then an increase again ahead of uh lunar new year.
• 3:59
  SPEAKER_00: So now we have a couple of factors that are probably gonna keep rates, I don't think they'll stay where they are now.
• 4:03
  SPEAKER_00: They'll probably ease, but they're gonna stay um elevated, certainly elevated to where they were before the war for a couple of reasons.
• 4:10
  SPEAKER_00: One is this congestion that we spoke about just now, and the other is that we still have very elevated uh fuel costs because of the closure in the street of Hermu.
• 4:18
  SPEAKER_00: So we'll likely see rates decrease, but we're probably gonna see a quite elevated floor, and we're gonna see uh prices climbing from that elevated floor once we get closer to Lunar New Year, which starts in the beginning of February.
• 4:29
  SPEAKER_00: So probably already in January or even late December, we'll start to see um prices increase again for container rates.
• 4:37
  SPEAKER_00: Um, finally, in the Trans-Pacific, was we know in August the Panama Canal, because of lower than uh normal rainfall from May to August, started taking steps to conserve water.
• 4:47
  SPEAKER_00: They reduced one of the Neo-Panamax transits, which are really important for those long-haul vessels, especially Asia to US East Coast.
• 4:54
  SPEAKER_00: They dropped that from 10, which is the normal daily transits, to nine, and they also reduced the maximum draft level to um to uh 48 feet um in August.
• 5:06
  SPEAKER_00: Now they've restored that transit back to 10 and restored that foot of draft back to 49 because there's been better than expected uh rainfall since August and into through September.
• 5:17
  SPEAKER_00: So that's a good sign in terms of conditions right now.
• 5:22
  SPEAKER_00: Um the bigger problem or the bigger question is there's still expectations of a forming El Nino that will mean reduced rainfall for the rest of the rainy season, which normally lasts into January.
• 5:31
  SPEAKER_00: And if that does materialize, then we could expect there to be our restrictions reinstated or maybe even stricter than what we've seen so far.
• 5:40
  SPEAKER_00: If we compare to the last time we had low water levels back in 2023, we're in kind of better shape.
• 5:45
  SPEAKER_00: Water levels in the uh lake that serves the canal are higher than they were there.
• 5:51
  SPEAKER_00: The steps taken so far were not as strict as they were previously, and now they've been reversed.
• 5:55
  SPEAKER_00: So those are good signs, but it still really depends on what happens in terms of the rest of the coming months and the rainy season and what happens with the El Niño.
• 6:03
  SPEAKER_00: Turning to Asia Europe, container rates there continued to ease.
• 6:06
  SPEAKER_00: And what we saw, we had an early start to peak season, same as Trans-Pacific, but rates peaked in July and started to ease since then and have continued to do so.
• 6:14
  SPEAKER_00: Last week, uh rates fell to about$3,400 per FEU for North Europe and$3,600 to the Mediterranean.
• 6:21
  SPEAKER_00: Um, carriers are announcing rate increases for late October.
• 6:26
  SPEAKER_00: It's not entirely clear what those will take in terms of what the market conditions are looking like right now.
• 6:31
  SPEAKER_00: Rates have been easing because carriers, because um peak season demand started easing.
• 6:36
  SPEAKER_00: So we're seeing, you know, on the demand side, lower levels, lower volumes, and therefore less pressure on rates.
• 6:42
  SPEAKER_00: We also have carriers returning some vessels to uh Red Sea transits, which effectively increases capacity because those vessels in the containers are moving faster through the system.
• 6:52
  SPEAKER_00: And so those probably are combining to ease pressure on rates on this lane.
• 6:56
  SPEAKER_00: However, if we compare rates now to a year ago, they're about 50% higher than they were last year this time.
• 7:02
  SPEAKER_00: They've fallen about three, four thousand dollars from those peaks in July, but they're still quite elevated.
• 7:06
  SPEAKER_00: And I think the same reason here.
• 7:07
  SPEAKER_00: We have uh Far East congestion absorbing capacity for North Europe.
• 7:12
  SPEAKER_00: We have congestion and North European hubs absorbing capacity for those lanes.
• 7:16
  SPEAKER_00: And then, as we said, we also have elevated fuel costs.
• 7:20
  SPEAKER_00: So we might see something similar here.
• 7:21
  SPEAKER_00: We're seeing rates trending down, but they might stay higher than they were certainly before the war and maybe even before peak season.
• 7:28
  SPEAKER_00: Um, but we'll see them increasing from that baseline once we get closer to a lunar new year.
• 7:33
  SPEAKER_00: Okay, that's it for this week.
• 7:34
  SPEAKER_00: Thanks for joining and hope to see you next time.