Phantom peak: expensive miscalculation by shipping companies in world trade
Shipping companies bet on a boom, but it failed to materialize. The phantom peak shows how geopolitical miscalculations cost billions - and distort entire markets.
Following the tariff pause that the Trump administration announced with China in May as part of the Swiss negotiations, shipping companies expected an early peak season. They put all their eggs in one basket. At the beginning of June, alliances such as Maersk, Hapag-Lloyd and MSC introduced peak season surcharges (PSS) and general rate increases (GRI) for contract customers. Spot rates, as measured by the World Container Index, shot up by 40 percent. Shipping companies threw every available container ship into the transpacific market. Capacity grew by 30 percent to over 560,000 TEU per week. However, demand lagged behind.
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Imports rise but miss forecasts
The Port of Los Angeles, together with Long Beach the gateway for the majority of US imports from Asia, reported an 18% increase in container imports in June compared to a weak May, according to weekly Port Signal data. Shipping lines had been banking on demand being twice as strong. Instead of a tsuanami, only a wave swept across the Pacific.
The figures show a pattern. Trump's tariff chaos did not trigger the feared 30% slump in imports, nor the flood of goods. The reality lies in between.
This can also be seen in the freeght rates, which shot up at the beginning of June but have fallen continuously since then. In the last week of June, they fell by 11 percent for New York and 15 percent for Los Angeles, to USD 3,317 per FEU. The phantom peak, a peak season that existed only in the minds of the shipping companies, shows the misjudgment of a market in the stranglehold of geopolitical games.
Fewer goods from China than forecast
On the other hand, China apparently did not benefit as much from the tariff break as expected and hoped for, which is also reflected in other data such as the purchasing managers' index. The Ministry of Transportation reported only a 3.1% increase in container throughput in Chinese ports in June, compared to 5.3% in April. While US imports in Los Angeles rose sharply, the majority of goods did not flow directly from China, but from "connector" countries such as Vietnam or Thailand. These countries transship Chinese goods, process them or put new labels on them in order to circumvent US tariffs.
The Inter Asia Container Index reflects this trend. From March to June, freight rates climbed by 35%, from 601 to 813 US dollars. After a correction of 7 percent in mid-May, when the customs pause briefly lured shipping companies onto US routes, rates rose by 15 percent in June. The main reason for this is the shortage of freight space. Shipping companies such as Maersk and MSC launched ships on the transpacific market to meet the anticipated demand. Capacity grew by 30 percent, but many of these ships came from the inter-Asian trade. At the same time, "connector" countries fueled demand as they prepared Chinese goods for the US and Europe. A double whammy that drove rates up.
Cheap imports from China put Europe under pressure
The rising freight rates to Europe show that China is flooding Europe with cheap products. Freight rates from Shanghai to Rotterdam, for example, climbed by 6.4 percent by the beginning of July, following an increase of 31.8 percent in June. This shows that low Chinese prices are strangling Europe's industry. The result is that European industrial companies are not competitive. Rising unemployment figures, for example in Germany, are increasing noticeably. Anyone who blames Europe's deindustrialization solely on internal weaknesses is ignoring the "China shock". Interestingly, this is still being ignored by German politicians. The flood of cheap goods is crushing Europe's markets.
The shipping companies paid the price for their miscalculation. Large providers such as MSC planned canceled sailings in order to curb the overcapacity in the Pacific. Smaller shipping companies such as China United Lines withdrew ships to more profitable routes such as the Far East-Red Sea. But the damage remained. Ports such as Los Angeles and Long Beach struggled with fluctuating volumes. A sudden surge in demand threatened congestion, but low capacity utilization kept the terminals idle.
The phantom peak shows how quickly expectations are shattered in a trade war. The tariff pause raised hopes of a flow of goods, but China delivered less than expected, while "connector" countries filled the gap. For logistics managers and investors, the message remains clear. Trans-Pacific trade fluctuates between geopolitical whims and false assumptions. The tariff pause ends on August 11. It is still not really clear whether the USA and China have reached an agreement or not. What is clear is that the shipowners have miscalculated and a cost driver is weakening.