News / Deepsea alliances: is the strain beginning to show as the peak season disappoints?

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With the peak season appearing to offer no immediate lift to freight rates, reports suggest all is not well within the deepsea east-west alliances as their shipping line members come under increased shareholder pressure to stem losses.

There seems little doubt that the rate war that has raged on Asia-Europe container trades since the second quarter has severely impacted the bottom line of carriers that have heavily discounted rates in order to fill ships.

Ahead of the first half-results season – set to begin with NOL on Thursday – G6 partner OOCL has released its second-quarter operational update, which reveals a massive 28% year-on-year decline in its Asia-Europe average revenue per teu.

The numbers show extreme pricing volatility. The carrier’s average rate in Q1 was just 1.9% below that of the same period of 2014 – and once the significant fuel savings were factored in, the first quarter resulted in a satisfactory performance.

OOCL is a bellwether company for second-tier carriers. It posted a $270m profit in 2014 – although only 18% of its total container business is exposed to the extreme volatility of the Asia–Europe trade.

Meanwhile, the Shanghai Containerized Freight Index (SCFI) gave up another big chunk of the July general rate increase (GRI) last week, tumbling a further $118 per teu on Asia to North Europe and $127 per teu to the Mediterranean, to sit at a depressingly low $400 and $402 per teu respectively.

And, worryingly for the container lines, there is little indication from forward-booking forecasts that the peak season will show significantly higher demand, making the implementation of 1 August GRIs of around $1,000 per teu optimistic.

Indeed, today’s “response to changes in market demand” statement from the G6 carriers announced the cancellation of one sailing a week from Asia to North Europe in September, following the blanking of the same loops in August, removing around 13,000 teu of weekly capacity, approximately 20% of the alliance’s offering.

Culling capacity in what is normally the Asia-Europe peak season is almost unprecedented, and follows the blanking of over 50 voyages on the route in the first half of the year, an all-time record.

At the same time, there are another 50 ultra-large container vessels of 13,800-19,000 teu due for delivery to carriers before the end of the year.

Shipping analyst Alphaliner estimates that nothing less than the removal of four entire Asia-North Europe strings is required to readdress the current supply-demand imbalance.

The complex operational workings of the alliances require complete co-operation between all members, but sources indicate that the different financial pressures carriers find themselves under is putting considerable strain on day-to-day working relationships.