China faces long-term export threat, while ocean rates plummet
Capacity demand for Chinese exports is in decline, mainly due to full inventories in Europe ...
The interim results from Maersk Line this week are a bellwether, indicating a welcome recovery for container lines, but challenging times for shippers.
Maersk Line’s average freight rate for the 5.4m teu carried on its vessels in the second quarter of the year was up 22% on the same period of 2016, but for east-west trades, there was a spike of 36%.
The carrier’s Q2 results confirmed analysts’ expectations that the tide has turned in favour of ocean carriers. Indeed, Soren Skou, Maersk Group CEO, said the carrier was now profitable on all its routes.
And six weeks into the third quarter, there is no evidence that freight rates are softening – not least as this year’s peak season is showing all the signs of a bumper harvest for the container lines.
For Asia-Europe, according to one source, shippers are “scrambling to sign new contract deals” with carriers to secure space on nominated loaders. But several carriers are reluctant to commit to mid- or long-term contracts and are offering a combination of one-to-three-month agreements, or imposing FAK (freight all kinds) rates.
As a consequence, carriers have lost interest in spot traffic and have reverted to only accessing the spot market as a last resort, or as a top up when light boxes are preferred.
Spot containers are regularly being rolled-over and shipments split, said the source, adding that the market was currently only being used by shippers for non-urgent cargo.
This explains the lack of movement in the container spot market indices in past weeks. In fact, the Asia-North Europe component of today’s Shanghai Containerized Freight Index (SCFI) is at $918 per teu, just $17 per teu below the reading of three weeks earlier. And for Mediterranean ports, the SCFI edged down just $28 in the same period to $831 per teu.
Meanwhile, on the transpacific, in the past few weeks the spot market also appears to have curbed its previous volatility. For Asia to the US west coast, today’s SCFI reading is $1,659 per 40ft, compared with $1,661 on 4 August. While for east coast ports, the SCFI shows $2,592 per 40ft against $2,661 three weeks ago.
If there was any doubt about a recovery in liner shipping, today’s comparison with the SCFI of a year ago makes interesting reading.
On 19 August 2016, the SCFI for North Europe stood at $691 per teu and for Mediterranean ports $594 per teu, having suffered a 50% slump in their values since the beginning of that month. And spot rates for the transpacific were less volatile but were also in decline, with US west coast ports at $1,159 per 40ft and $1,694 per 40ft for east coast ports.