News / Asia-Europe carriers in last-ditch bid to raise plunging rates before slack season

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The first week gains of September’s general rate increases were all but wiped out in the spot markets, so it was business as usual on the troubled Asia-Europe tradelane this week.

Carriers saw the Asia-Europe components of the Shanghai Containerized Freight Index (SCFI) shed $175 per teu for North Europe and $252 for Mediterranean ports, sending the index back down to $588 and $613 per teu, respectively, for the trades.

Furthermore, sources suggest that cargo demand for North Europe is currently so poor that the remnants of the latest GRI will be eroded next week as carriers are forced to concede even lower rates for cargo in the spot market to boost vessel load factors.

And with cargo demand expected to fall sharply in October, ahead of China’s Golden Week holiday, the container lines will be worried that rates will come under even more pressure at exactly the wrong time in the cycle: before the start of the traditionally slack season.

In a bid to lift rates before then – and not least before the start of new annual contract discussions – Asia-Europe carriers are trying a new tactic by introducing an average $500 per teu GRI on 20 September.

Unfortunately for carriers, demand has plummeted in the past six months. European imports from Asia sank by 6%, year-on-year, in the second quarter – a consequence of the combination of the Russian economic crisis and retailers anticipating a softer consumer market.

According to Maersk Line forecasts, the market could contract by 4% this year over last year, although it expects European inventories to “normalise” in 2016.

During the Maersk Group’s Capital Markets Day in Copenhagen this week, executives suggested that all container lines were “operating in an unhealthy industry”, with demand growth at its lowest since the financial crisis. And given that supply continues to outgrow demand on many routes, Maersk saw no respite ahead from the downward pressure on freight rates, which had fallen by an average of 1.9% a year since 2004.

The Danish carrier said its short-term response to the supply chain imbalance was to blank sailings and it has already cancelled 30 voyages in the August-October period; and it confirmed that if necessary, it would withdraw capacity altogether.

Having announced the removal of its AE9 Asia-North Europe string this month and the ME5 Indian subcontinent to Mediterranean link in October, Maersk said it was looking at cutting between two and four more strings during the fourth quarter, which could include more capacity cuts between Asia and Europe.