News / Container lines have 'only themselves to blame for Asia-Europe rate collapse'

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Ocean carriers should have cancelled more Asia-North Europe voyages in February to compensate for the post-Chinese New Year lull, according to the latest research from shipping consultant Drewry.

In its weekly Container Insight, Drewry says that after the “exceptional cargo boom” of the final month of 2013 and the first few weeks of 2014 – ahead of the earlier-than-usual holiday shutdown from 31 January – carriers serving the overcapacity-plagued trade ought to have blanked more sailings to underpin the high utilisation-induced rate gains of the previous weeks.

Having judiciously adjusted capacity in December and January from Asia to north Europe, lines enjoyed a 96% utilisation factor on ships in December and an almost utopian 108% in January (we know 108% doesn’t make sense, but neither does “giving 110%”. What it actually means is that there were cargo rollovers ex-Chinese ports in the month).

Carriers then let shippers off the hook in February by voiding only nine westbound sailings – representing a 5% capacity reduction at a time when demand was at its weakest.

Unsurprisingly, spot rates closely track the utilisation levels of ships on the trade. For example, the pre-CNY cargo surge and the rolling of cargo from one voyage to the next as capacity tightened, spooked shippers to more readily accept general rate increases.

In fact, according to the Drewry-powered World Container Index, at the peak of the pre-CNY boom, spot rates had more than doubled from November 2013’s lowly $1,500 per 40ft to more than $3,000 per 40ft in early January.

Fast-forward a couple of months, however, and, as The Loadstar reported yesterday, the Shanghai Containerised Freight Index (SCFI) lost another 10.1% last week, showing spot rates from Shanghai to North European ports having declined to $888 per teu – a massive 50% markdown since the beginning of the year.

Moreover, it is difficult to see things improving much for the carriers before April, given that rate erosion-halting GRIs planned for March are effectively dead in the water, sabotaged by the decision of CMA CGM and MSC to defer their rate restoration attempts until next month.

In contrast, spot rates from Asia to the US west coast have proved to be less fickle, showing increases of $100 or more per feu on the partial success of $300 per feu mid-March GRIs, which will be welcome news for carriers currently in the midst of negotiating new annual contracts with their customers.

With hindsight, Asia-Europe carriers will feel they missed a trick in not maintaining the squeeze during February, and not building on their successful capacity management in December and January.

And according to Simon Heany, senior manager of supply chain research at Drewry, the worst may yet be to come for carriers, as a flood of ultra-large newbuildings are delivered, leading to more cascading of displaced tonnage that will negatively impact other trades.

“The policy of skipped sailings and frequent GRIs can be expected to continue, but any gains from these tactics will only bring temporary relief to carriers,” Mr Heaney added.