Average weekly container space in July-September expected to be greater, year on year, in spite of efforts by some lines to prop up rates by limiting vessel supply.
Containership capacity on the Asia-north Europe trades is expected to be higher during this year’s peak summer months than last year, despite the efforts by some lines to prop up rates by blanking sailings.
According to figures from SeaIntel published inLloyd’s List this week, the average weekly capacity in weeks 28-39 is still up 2.8%, year on year, at around an average of 262,000 teu, in spite of lines’ adjustments to their capacity.
It notes that carriers on the Asia-north Europe trade have been trying to restore a better balance between supply and demand, in order to get the freight rates up from the historical lows we have seen over the last couple of months. For example, it said 2M had announced a downgrade of its AE9/Condor service, “but this announced downgrade had not yet been implemented, as the vessels on schedule for the service are still the larger ones”, SeaIntel noted.
“Second, we saw Ocean Three announce the combining of FAL 1 and FAL 3 into a single service from week 26 and the following 12 weeks. Third, we have seen G6 announce a large number of blank sailings across their five Asia-north Europe services.”
But despite these announcements, it calculated that average weekly capacity from July to September would be 2.8% higher than last year.
In an article last month, Lloyd’s List notes that the price war that has ravaged the market in recent months reflects much lower vessel utilisations, in contrast to 2014 when healthy demand growth of around 8% left ships full.
Not only were volumes from Asia to north Europe down by around 3% in the first four months of this year because of a weak euro, but also imports into Russia via both Black Sea and Baltic ports have plummeted by up to 50% as a result of the rouble’s depreciation following the imposition of western sanctions, the article notes. That decline alone is the equivalent of one Asia-Europe loop.
These twin pressures on demand have come at a time when supply is growing briskly as lines take delivery of their new generation of 18,000 teu ships, pushing up slot capacity by around 8% this year, Lloyd’s Listnotes. As a result of these new arrivals, utilisation levels across the trade have slipped to percentages in the low 90s.
Calculations by Containerisation International show that load factors have averaged around 92% in the second quarter of this year compared with 96% a year ago, with only a modest improvement forecast for the traditional peak third quarter to 93%.
Although peak-season demand levels have yet to be seen, in the article in Lloyd’s List last month, CMA CGM senior vice-president Nicolas Sartini, who is in charge of the Asia-Europe trades, said there were signs that there would be an upturn in demand in the third quarter. “There is always a peak season, and it can be stronger or weaker, but what we can clearly see is that our direct accounts are asking for more space protection in July, August and September,” he said.
As reported in Lloyd’s Loading List.com on Monday, there was no let-up for box lines operating on the Asia-Europe trade last week, as rates to both northern Europe and the Mediterranean continued to fall following the market’s partial acceptance of general rate increases at the start of the month.
On the key Asia-north Europe trade, freight rates on last week’s SCFI plunged by a further 25.9%, or $181, to $518 per teu, while on the Asia-Mediterranean trade they fell by a whopping 28.2%, or $208, to $529 per teu. For Asia-north Europe carriers, Freight Investor Services broker Richard Ward said that there would now be concerns over whether rates could reach negative freight territory for the second time this year.
“At current levels, carriers are unlikely to see anything more than a partial increase when their next planned GRI comes into force from August 1,” he said. “These latest declines come despite attempts by three alliances to withdraw capacity, which has not been enough to offset weak cargo demand, with utilisation rates reportedly still between 80% and 90%.”
However, he also pointed to the fact that this most recent withdrawal of capacity has not been mirrored by the 2M alliance of Maersk Line and Mediterranean Shipping Co, which raises questions as to whether those that have withdrawn capacity will do so again in the near future at the risk of losing market share.
“On current projections, not only will average freight rates on the Asia-north Europe trade be lower than 2014, but they could also be lower than those witnessed in 2011, landing another blow for those carriers already in financial difficulty,” warned Ward.