Drewry WCI slides 4% to $4,374/FEU as peak-season rally unwinds

The Analysis

Twenty-third of July, and the composite is 4,374 dollars per 40ft container. Down 4 percent on the week, and it is the second week running that it has gone down. The ten weeks before that it only went up, and the last print on the way up was 4,639 on the ninth of July. Two down, ten up. I have carried this series in a spreadsheet since May and I can draw the shape of it without looking: a long climb, a top, and then this.

What makes the week worth a column is not the 4 percent. It is the last sentence of Drewry's note. Carriers have nine blank sailings scheduled on the transpacific to defend pricing. Rate going down, ships coming out. Those two do not usually share a paragraph, and when they do, the paragraph is telling you the carriers read the decline as a threat rather than as a correction.

So the question for anyone with August freight is narrow. Do you chase the slide, or do you take 5,878 dollars on Shanghai to Los Angeles and lock it? I will run the arithmetic both ways, I will say where I would put the trigger, and I will be explicit about every number I had to assume to get there.

Let me put the four lane numbers on the table before I interpret any of them, because the lanes are not moving together and the composite hides that.

Shanghai to Los Angeles, 5,878 dollars per 40ft, down 6 percent. Shanghai to New York, 7,598, down 4 percent. Shanghai to Genoa, 5,988, down 5 percent. Shanghai to Rotterdam, 4,824, down 1 percent. Composite, 4,374, down 4 percent.

Run those backwards one week and you get the week this summary does not quote. If Los Angeles fell 6 percent to 5,878 it was sitting near 6,253. If New York fell 4 percent to 7,598 it was near 7,915. Genoa at minus 5 gives about 6,303. Rotterdam at minus 1 gives about 4,873. Those four add to roughly 25,344 before and 24,288 now, which is about 1,056 dollars of rate coming off four boxes, a shade over 4 percent across the set. Drewry did not publish the prior-week lane rates here, so treat the four back-outs as arithmetic and not as quotes. The 4,374 is the quote.

Now the thing I want you to notice before anything else. Average the four lanes we were given and you get 6,072. The composite is 4,374. Those are not the same measurement, and the distance between them is precisely why you should not price a book off the composite. The composite is an index number across a set of routes. The four figures above are four prices on four named trades. If your boxes move Shanghai to Los Angeles, your number today is 5,878 and the 4,374 is a headline about somebody else's average.

The second thing is the spread inside the fall. Rotterdam gave up 1 percent. Los Angeles gave up 6. That comparison is the whole week, and it is causal rather than statistical. The pull-forward Drewry says has ended was a pull-forward into the United States, run to get cargo landed before a tariff deadline on 24 July. European cargo had no such date to run at. European importers did not borrow demand out of August, so European rates do not have to hand it back. Rotterdam at minus 1 percent is the control group in this experiment, and if you read the composite as a global signal and re-planned your Europe book off it, you read the wrong sample.

There is one number here I want to flag rather than pass along, and it is the deadline itself. The summary says a US tariff deadline on 24 July. It does not say what the duty is, what rate it lands at, which goods it covers, or what the entry basis is. I am not going to fill that in from memory and neither should anyone building a landed cost this week. The deadline is a scheduling fact and it explains the timing of the demand. The duty is a separate lookup in a separate system and it belongs on a separate line of your model. Do not net the two against each other in your head. On this evidence the ocean leg is coming down and the customs line is not.

Then the nine blank sailings, which is where I think most people will get this wrong.

Carriers do not pull ships out of a trade because they have too much cargo. They pull them because the rate is falling faster than they will tolerate, and a departure that would have sailed 70 or 80 percent full at a lower rate is worth less to them than no departure at all plus a rate they can hold. Nine blank sailings on the transpacific is a supply cut. The mechanism is blunt and it does work. Fewer departures, tighter space, and the spot rate stops sliding because the cheapest boxes in the market leave with the ships.

Here is the arithmetic problem with it, and it is the part I would push back on if an account manager said it to me. Drewry gives the count and the trade. It does not give the weeks, the services, the loops, or the vessel sizes. Nine could land in one week or spread across four. It could be one string blanked end to end or nine individual departures off nine different services, and those two are not remotely the same amount of capacity. I am going to assume an even spread across the two weeks following the assessment, roughly four and a half departures a week, purely because I need a number to reason with, and I am telling you plainly that it is my assumption. If your forwarder can produce the actual list by service and week, throw mine away and use theirs.

The signal matters more than the capacity number anyway. A carrier that removes nine sailings at the moment the pull-forward ends is telling you it believes the soft patch is temporary. It is also telling you it would rather carry the cost of nine unused ship slots than let the rate find its own floor. Read that as a floor under the market, not as a direction for the market. A floor is not a direction. The rate can sit on a floor for six weeks and cost you more than a small rise would have.

Let me do the only calculation that actually decides anything for a shipper, which is whether waiting pays. I need assumptions, so here they are in the open, where you can argue with them.

Assume you move 40 40ft containers a month on the transpacific eastbound. Assume you buy at or near index. Assume your volumes are steady, so the only variable each week is what you pay. Assume a four week decision horizon.

Booking today at 5,878 on Shanghai to Los Angeles against the week-before level of roughly 6,253 saves you about 375 dollars a box. Across 40 boxes that is 15,000 dollars a month, and it is already in your pocket whether or not you noticed it happen.

The live question is the next four weeks. Take two paths. Path one, the slide continues at the same 4 percent a week on the lane. 5,878 becomes about 5,643 after one week, about 5,417 after two, and four weeks of it puts you near 4,992. Against today that is roughly 886 dollars a box saved, or about 35,440 across the month. Path two, the blank sailings bite and the rate turns, turning at the same 4 percent a week. One week puts you at 6,113, two at 6,357, four at about 6,875. Against today that is roughly 997 dollars a box more, or about 39,880 across the month.

Those two paths do not carry the same weight, and this is the assumption I would genuinely argue with you about. The carriers have taken nine ships out. I would put it at 40 percent that the slide continues and 60 percent that it does not. On those odds the expected value of waiting four weeks is 0.4 times minus 886 plus 0.6 times plus 997, which is about plus 244 dollars a box, or roughly 9,750 across the month. Waiting is expected to cost you money. If you call the odds even, the expected value falls to about plus 56 a box, roughly 2,220 on the month, which is close enough to a coin toss that freight stops being the deciding variable and service does.

If you think the carriers are bluffing and put it at 70 percent down, the expected value turns to about minus 321 a box, about 12,840 saved, and waiting wins. The entire decision collapses into one number you have to say out loud: how much do you believe nine blank sailings.

That is the freight line. It is not the whole calculation, because a rolled box carries a second cost that people forget until it arrives.

Assume your door to door on this lane runs about 30 days, and I am using 30 because I need a pipeline figure, not because I know your routing. Forty boxes a month is roughly 10 boxes a week in the pipe. If a blanked sailing rolls your cargo by one week, the box you expected in week six turns up in week seven, and to keep the shelf full you need one extra week of pipeline, which is 10 boxes of buffer. At 5,878 those 10 boxes are 58,780 dollars of inventory you did not plan to finance, and you finance it for as long as the blanking continues. Set that against the 15,000 a month you saved by buying lower and one week of rolling eats close to four months of freight saving. This is why the rate is very rarely the biggest number in a blank-sailing month.

Which brings me to what I would actually do, and when.

Monday the twenty-seventh. Get the blank sailing list in writing, by service loop and by week, from every carrier and forwarder you buy from. Not a verbal assurance that your space is safe. A list. Anything that cannot produce a list by Wednesday is telling you it does not know, and a supplier that does not know is a supplier you should plan around.

Wednesday the twenty-ninth. Set the lock and float split for August and September and write it down. These are my lines, and you should argue with them rather than copy them. If the composite prints above 4,500, which is about 2.9 percent above where it sits now, or if Shanghai to Los Angeles prints above 6,200, which is about 5.5 percent above today, I stop floating and lock 60 percent of third quarter volume on a fixed rate for 60 days. If the composite prints below 4,200, about 4 percent below now, I keep the whole book floating and take the market. In between those two lines I do nothing, and doing nothing is a decision with a cost, so say so in the meeting rather than letting it happen by default.

Thursday the thirtieth and Thursday the sixth of August. Two more Drewry prints. Two prints in the same direction after nine blank sailings is a real signal, not noise, and it is the point at which the floor story dies and you stop waiting. One print in each direction is noise, and you do nothing.

Friday the thirty-first. Reprice third quarter landed cost using 5,878 on the US west coast leg and 4,824 on the Asia to Europe leg if you ship both. Do not use 4,374 anywhere in that model, because 4,374 is not a price you can buy at. Every forecast you handed your finance team in June was built on a rising curve, and the curve has turned, and the revision is worth doing this week rather than at quarter close.

Wednesday the twelfth of August. Reconcile invoiced against quoted on every August sailing. In a month with blankings this is where the money leaks: rolled boxes re-invoiced at the new week's rate, peak season surcharges applied on the sailing date rather than the booking date, and equipment imbalances that quietly add a per-box charge nobody approved.

Monday the seventeenth of August. If you have fourth quarter peak cargo, stop optimising the rate and start securing the space. Nine blank sailings announced in late July is a carrier telling you what the rest of the peak looks like. The cheapest box of the season has usually already gone by the time the second month of declines is confirmed.

One more thing belongs in the first week, and it is dull enough that it usually gets skipped. Find out which index print your contract actually cites. If you have an index-linked clause it names an assessment date or an averaging window, and in a month where the composite ran from 4,639 on the ninth of July down to 4,374 on the twenty-third, the gap between citing the peak print and citing the current one is 265 dollars on the reference number, about 5.7 percent. On a quarterly reset that is not a rounding difference, it is the whole negotiation. Pull the clause, read the date language, and if it says something loose like prevailing market rate, treat that as a defect to fix at the next tender rather than as a number you can lean on this week.

What would change my mind about everything above is evidence rather than opinion. If the next two prints take the composite below 4,200 and the blank sailings are quietly reinstated, the floor story is wrong and I would move the entire book to float and let it run, and I would say so in print. If the prints come in at 4,500 or better and the blanking list grows past nine, the floor story is very right and I would lock more than 60 percent and stop being clever about the rest. Both are observable inside two weeks. Deciding now, writing the date of the review next to the decision, and actually holding the review is worth considerably more than being right about the direction on the day.

Now the alternatives and the traps, because this is where a good decision quietly becomes a bad one.

Switching discharge coast. New York at 7,598 against Los Angeles at 5,878 is a gap of 1,720 dollars a box, and Los Angeles is 29 percent cheaper on the ocean leg. That gap is the number your inland move has to beat. Pull your own rail or truck number from your rate management system and set it next to 1,720. If your inland from the west coast to final destination is more than 1,720 above your inland from the east coast, the east coast routing wins on paper, and then you check the transit and the reliability before you believe the paper.

Switching mode. Air is not an answer to a 4 percent ocean move and I am not going to pretend otherwise. What air is an answer to is the roll risk I priced above. If 10 boxes of buffer is 58,780 dollars of inventory, and a rolled week puts a production line or a shelf date at risk, the comparison is between 58,780 of financed inventory plus a late delivery, and your air quote on the critical part of the order only. Run it on the critical subset, not on the whole book.

Switching origin or switching inventory policy. Both are slow answers to a fast question, and both have a cost that lives outside the freight budget. If you are going to look at them, look at them in September with August actuals in hand, not this week on the back of one index print.

The traps, which are mostly about definitions.

The index is not your invoice. Drewry assesses spot on named trades. Your contract rate, your FAK, your named account rate and your spot all move at different speeds and sometimes in different directions. Before you claim 375 dollars a box of saving anywhere, check which of those you actually buy.

Surcharges move independently of the base. A falling base rate with a peak season surcharge still on file, or with a new one filed on the back of the blankings, produces an all-in that does not fall 4 percent. Always ask for one all-in number per box, base and surcharges combined, on one date, in writing.

Free time is the quiet cost of a blank sailing. A rolled box sits. If your free time is measured from discharge and the discharge moves a week, your detention and demurrage exposure moves with it. Check your own free time terms now rather than when the invoice lands, and ask for extended free time on any service you know is blanked.

Transit promises. If you have quoted customers on a transit built from a published schedule, and nine sailings have just come out of that schedule, your promise is now wrong in a direction that costs you a claim. Re-baseline your quoted transits this week.

The duty line and the freight line are separate. The 24 July deadline has passed by the time you read this. Whatever the duty is, it arrived on the customs line while the ocean leg was falling. Do not let a 375 dollar freight saving talk you out of a landed cost review.

And do not import the American curve into Europe. Rotterdam lost 1 percent because European importers did not front-load. If you plan your Asia to Europe tenders off a composite that fell 4 percent, you will bid into a market that is not falling, and you will lose the volume or win it at the wrong price.

Two down weeks and everybody I talk to has called the top. Maybe they are right. The carriers have taken nine ships out of the water to disagree with them, which is an expensive way of saying no, and they would not be spending that money if they thought you were correct. My own view is duller than either story. The rate came off a tariff-driven pull-forward that has now expired, the supply side is being cut to stop it coming off further, and the sensible position is to take the 375 dollars a box that is already on the table and put a trigger on the rest rather than guessing which way a coin weighted by nine missing ships will land.

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— By Vivian Zhao