Failed Price Hikes: MSC & Hapag-Lloyd Freeze Rates Before Lunar New Year

1. Market Rate Freeze and Key Players’ Moves

1.1 Core Rate Commitments

1.2 Divergent Market Views

• Mainstream Pessimism: Most industry observers believe the pre-holiday mini peak is off the table due to sluggish demand and oversupply.

• Minority Optimism: A large forwarder with strong cargo intake argues that volumes will pick up in the two weeks before the Lunar New Year, potentially allowing for small actual rate increases.

2. Root Causes of Failed Price Hikes

2.1 Supply-Demand Imbalance

• Oversupply Persists: Ultra-large carriers (ULCS) have abundant capacity. The 2M Alliance (Maersk & Hapag-Lloyd) has refrained from significant blank sailings, exacerbating the oversupply issue.

• Weak Demand: Pre-holiday shipment volumes have not met expectations, failing to support rate increases.

• Cost Structure: ULCS have a lower cost base ($1,400–$1,600 per 40ft on the US West Coast) than smaller carriers, giving them room to cut prices to boost load factors. Smaller carriers that blank sailings face higher unit costs due to fixed cost amortization and are forced to follow price cuts.

2.2 Carrier Strategy Dynamics

• Price Leadership by ULCS: Maersk’s $1,800 quote undercuts MSC and Hapag-Lloyd’s $2,100, intensifying price competition.

• Pre-emptive Price Cuts: ULCS use price cuts to secure more cargo and increase utilization rates, creating a domino effect of sequential price reductions across the market.

3. Cost, Capacity and Profitability Analysis

3.1 Key Cost & Profit Metrics

• Cost Floor: The break-even cost for the US West Coast route is approximately $1,400–$1,600 per 40ft container.

• Current Profitability: Existing rates ($1,800–$2,100) are still above the cost floor, providing carriers with some profit margins and flexibility to lower prices.

• Capacity Management Dilemma:

• Non-blanking Carriers: Maintain lower unit costs and use price cuts to capture market share.

• Blanking Carriers: Suffer from higher unit costs due to lost fixed costs, reducing their pricing power.

4. Market Outlook and Implications

4.1 Near-Term (Pre-Lunar New Year)

• Rate Trajectory: Rates are expected to remain under pressure, with limited upside potential. The $1,800–$2,100 range will likely hold until February 15.

• Peak Season Prospects: The mini peak season is highly unlikely due to persistent oversupply and weak demand.

4.2 Post-Holiday Risks

• Further Price Erosion: If demand does not rebound, a new round of price competition may be triggered after the holiday.

• Capacity Discipline: The market will closely watch whether carriers, especially the 2M Alliance, implement more aggressive blank sailings to rebalance supply and demand.

5. Recommendations for Shippers & Forwarders

1. Lock in Contracts: Secure rates with reliable carriers before February 15 to avoid uncertainty.

2. Flexible Booking: Diversify carrier options and prioritize those with stable space allocation and schedule reliability.

3. Inventory Planning: Accelerate shipments to avoid potential blank sailings and container roll-over risks in late January.

4. Cost Control: Leverage the current rate competition to negotiate favorable terms, especially for high-volume shipments.