Excess supply expected in Q3 despite significant predicted capacity withdrawals by container lines.
Excess supply will limit the scope for freight rate increases on the East-West headhaul trades this quarter despite significant predicted capacity withdrawals by container lines, according to a new report.
Noting that freight rates had broadly failed to gain traction in recent weeks, Maritime Strategies International (MSI) said pricing on key lanes – including those from Asia to North Europe, the Mediterranean and the US West Coast – was now some 20% lower than a year earlier.
“While lines are attempting to achieve rate increases – both Maersk and CMA CGM announced 10-15% increases in Asia-North Europe FAK rates as of 1 August – we believe supply-demand fundamentals will limit potential upside in the near-term,” said the analyst.
“On the Asia-Europe trade we expect only a full-blown service withdrawal, along the lines of the 2M ‘Swan’ withdrawal last year, would counteract this drag on rates.”
MSI forecasts spot freight rates for the rest of Q3 will prove disappointing for container lines in terms of year-on-year comparisons on both the Asia-Europe and Transpacific headhaul trades. The differential on the Transpacific will be especially pronounced after the extended demand surge during the second half of 2018 due to tariff-induced frontloading. This resulted in a prolonged freight rate peak, as well as significant disruption suffered by shippers.
“The Transpacific headhaul trade remains under pressure, although US West Coast ports continue to bear the brunt of the trade war driven slowdown,” said MSI. “Eastbound volume growth was essentially flat over the first half of 2019.”
Trade talks between the US and China have now resumed in Shanghai, but while MSI does not expect a further escalation of the trade war in the near term, the analyst said policy changes have frequently been sudden.
“We expect Transpacific import growth will range from slightly positive to slightly negative over peak season, as healthy US consumer demand for goods not affected by tariffs is set against inventory build and unfavourable points of year-on-year comparison for goods targeted by tariffs,” it reported. “Unless a new round of frontloading commences, we expect import growth will be strongly negative by the end of 2019,” it noted.
On the Asia-Europe headhaul trade, MSI is not expecting a major drop-off in rates at the end of Q3 with average spot rates forecast to remain largely stable through the second half of the year.
“Our recent assessment that Asia-Europe growth over the remainder of 2019 will lag the pace of its opening months remains in place,” it noted. “While the key consumer and labour market segments of European economies remain under less pressure than manufacturing sectors, the overall macroeconomic backdrop is gloomy and year-on-year comparisons will become less flattering as H2 2018 saw stronger growth than H1 2018.
“The one-year anniversary of Turkey’s economic crisis does pose potential upside, as 2019 volumes will now be compared against a weaker point of comparison. Overall, however, we continue to expect growth of 1.5-2.5% year-on-year on the Asia-Europe westbound over the next six months.
“By December we expect monthly average spot rates on the Asia-Europe trades of just over $900/TEU,” MSI added.
Source: Lloyd’s
