News / No relief for carriers as spot rates resume downward spiral after Chinese new year holiday

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Container spot rates between Asia and Europe resumed their pre-Chinese New Year downward spiral this week, adding further fuel to the financial fires raging in many ocean carrier boardrooms.

After a week’s break, the Shanghai Containerised Freight Index (SCFI) components for North Europe and the Mediterranean slumped by $99 per teu and $110 per teu to $332 and $344, respectively.

According to container derivatives broker FIS, the latest decline for North European ports sees rates 67% below the corresponding period of 2015 and fast approaching the all-time low for the tradelane of $205 per teu.

“Carriers had planned to implement a GRI of around $900 on 1 March,” said FIS, “However, this has now been pushed back to 15 March, suggesting utilisation is not strong enough to support such an increase.”

Indeed, post-holiday weakness in demand was confirmed today by an announcement from G6 alliance members of an 11-week suspension of its Loop 6 Asia-North Europe service – which calls at Southampton, Antwerp, Rotterdam and Hamburg – due to “changes in market demand”.

Further G6 “service adjustments” could follow, and it would seem odds-on there will be cancellations from the other three alliances as all lines wrestle with severe overcapacity and sluggish demand.

It became clear from Maersk’s results last week that all carriers plying between Asia and Europe are likely operating vessels at a loss. There is no silver bullet – fuel savings have been used up and unit costs have been paired to the bone.

The dilemma, for even the carriers with the deepest pockets, is how long they must keep throwing money at a route which shows no sign of recovery.

With G6 alliance members preparing to lay-up 11 ultra-large container vessels for almost three months, more will need to follow until the supply-demand equilibrium is regained and before irreparable damage is inflicted on balance sheets.

And unfortunately for global carriers, returns on other tradelanes are also proving disappointing, with freight rates under pressure on all routes. The SCFI saw a significant decline in spot rates from Asia to the US this week. For the USWC, rates dropped by $251 to $1,070 per 40ft, a decline of 19%, while for the US east coast, rates fell by $264 per 40ft to $2,074.

This is especially bad news at the start of the annual contract negotiation season on the transpacific tradelane.

But it is not just the largest trades where rates are plummeting – FIS noted that spot rates to the South American east coast have hit their lowest level ever, plunging to just $99 per teu.