Death by a Thousand Paper Cuts: Why Transpacific Rates Are Back Near Covid Peaks

Freight rates between China and the US are nearing pre-COVID levels, but the transpacific market has experienced a more dramatic rise than other routes. Analysts were not expecting this surge, even as oversupply and weak demand kept prices relatively flat or falling at the beginning of the year. Transpacific freight rates have climbed from $2,000 per FEU in January to nearly $2,400 by April, while China to US East coast rates are close to $11,000, only 7% below the COVID peak, and China to US West coast rates have scratched $8,000.

The rise in prices is attributed to increased bunker costs, with VLSFO in Singapore nearly doubling from $400 in January to $900 in September. Network rerouting and high demand have also played a role, but cannot fully explain the steep price increase. Typhoons in the Western Pacific have caused delays and cancellations, likely affecting the European trade more than the US West Coast.

However, the US East coast has seen even more aggressive price increases, possibly due to forecasted record el Nino and Panama Canal vessel restrictions.

Ultimately, none of these factors are significant enough alone to justify the high freight rates. However, the compounding effect of these issues is driving the prices up. It appears to be a "death by a thousand paper cuts." For carriers, defending their price gains will be challenging, while shippers should expect prices to drop once disruptions subside. Despite the current turmoil, the market is expected to favor shippers' interests at the 2027 tender season.