Episode #34: The July BAF Panic and the $166 Billion Liquidity Twist

So in the Persian Gulf, there is continued or maybe intensifying military exchanges, even as negotiations are continuing.

But once again, for freight, as long as the strait remains closed, it's basically more of the same.

But we started to see container rates starting to climb sharply on the major east-west lanes.

It's a little earlier than usual.

So what's going on with container rates and why is this happening so soon?

yeah so so peak season demand is certainly clearly kicking in now and sticking on the major east west lane so both asia europe and trans-pacific and they're starting from kind of already elevated levels because of the straight of hormuz issue because of carriers passing on fuel costs we're at kind of an elevated starting point as well and we're definitely seeing increased demand there even reports that some contracted carriers are having their allocations limited or cut and seeing premiums apply Why is it an early start? So for Asia Europe, it's not so early compared to what we've seen the last couple of years because of Red Sea diversions.

They have longer to go.

They have to make sure they get all their goods in time so they're not stuck without inventories when they need them for the shopping season.

But the additional aspect of this year, which I think is also now in play for Trans-Pacific, is fuel costs.

So shippers shipping on the spot market, those costs are passed on immediately in emergency fuel surcharges.

But for bigger shippers who have contracts Mostly they pay their fuel costs through the BAF, through the bunker adjustment factor, which is a just quarterly kind of retrospective for what the carriers paid in the previous quarter.

So even if there are some surcharges or some increases passed along, they're going to be more significant starting in July.

And so that's probably where we're seeing a big increase in demand from those big contracted shippers.

And that means less space for spot market shippers and therefore rates going up.

But yeah, we've definitely seen them going up.

Sharpling.

So from the start of the war till the end of May, rates have increased about 15% across these lanes.

But starting with the June 1st, we saw GRIs, we saw peak season surcharges.

It could be really significant.

And those are already pushed rates up about $1,000 to as much as $1,800 per container just this week.

So last week, week on week rates were about level, but this week they're climbing fast.

So On the Trans-Pacific to the West Coast, they're already at $4,800 per container.

To the East Coast, $6,000.

To Europe, $4,000.

To the Mediterranean, $5,500.