News / No Christmas cheer for Asia-Europe container trade

14/12/2012

Hopes that a new round of freight rate rises on the struggling Asia-Europe container trades will be pushed through next week are thinning, The Loadstar has learnt.

Next week will see container shipping lines launch yet another general rate increase on the Asia-North Europe trade as they struggle to remain profitable, but few believe that the rate rises will have any sort of longevity.

“GRIs? Next week? No,” one prominent European sea freight forwarder told The Loadstar. “On the CIF prepaid, a few of the carriers have gone for GRIs, but on the FOB all we have seen are extensions,” he added.

Neil Dekker, editor of Drewry Maritime Research’s Container Forecaster, was slightly more sanguine – but ultimately as pessimistic: “It is clear that the carriers will try to hard-line the GRIs just as they did earlier in the year, and they may get something next week, but in our view the fundamentals to support this just aren’t there: demand is very weak and there is too much capacity, despite some attempts to address this.”

Carriers have responded to the over-capacity on the North Europe trade by skipping individual sailings, with the latest coming from the CKYH Alliance earlier this week, announcing seven sailings to be missed in January and February. But Mr Dekker believed this would be unlikely to fully tackle the problem.

“The carriers’ main weapon will be missed sailings rather than fully pulling loops – a very similar tactic to that deployed in October when they made a concerted attempt to push up rates.”

According to Mr Dekker’s research, average load factors on the Asia-North Europe trade were in the low 80s in October, and a series of missed sailings took 4.5-5% of capacity out of the trade, thereby increasing load factors by about 4%.

The effect on freight rates was instructive – after the GRIs were implemented the spot rate on the Drewry-advised World Container Index stood at $2,220 per 40ft from Shanghai to Rotterdam, but by the end of the month that had slipped 6.5% to $2,075.

“On that basis I suspect that the December story will be similar. If they are expecting to maintain rate stability by hard-lining GRIs and not addressing capacity, it’s not going to happen,” he said.

Indeed, information passed to The Loadstar suggested that some of the Asian carriers are currently seeing load factors of just 47-55%.

Today’s WCI stood at $1,935 per 40ft, a decline of 2.8% from last Friday, although customers have been able to obtain rates below that level, while next week’s GRIs are in the $550-650 per teu range, depending on the carrier.

The situation on the Asia-Med trade is even worse. Today’s WCI was $1,327, virtually the same as last week. As a measure of how far the market has tumbled, the Asia-Med spot rate was around $4,000 per 40ft in May.

There have also been announcements by some carriers that they will introduce either another general rate increase in mid-January, or a peak season surcharge, which amount to “much the same thing”, according to customers.

Cosco will push rates up by $300 per teu, and MSC by $350 per teu, but whether these will stick or not was “too early to tell”, one forwarder said. “There will be either a PSS or a GRI, and these may well hold a bit – but a lot will depend on what sort of volumes we see prior to Chinese New Year.”

“They will bolster earnings a bit,” Mr Dekker predicted. “But what is going to happen by the third or fourth week of February? Unless there’s a huge amount of missed sailings I can only see them falling once more.”

And today’s Chinese manufacturing PMI [Purchasing Manager’s Index] data from HSBC, which measures Chinese factory output and activity, will not give much encouragement to intercontinental carriers.

Although the headline manufacturing PMI stood at a 14-month high of 50.9, this was almost entirely driven by domestic demand, and export orders were down.

Hongbin Qu, chief economist, China and co-head of Asian Economic Research at HSBC, said: “China’s ongoing growth recovery is gaining momentum mainly driven by domestic demand conditions. However, the drop of new export orders and the downside surprise of November exports growth suggest persisting external headwinds.”