News / Intra-Asia rates are under pressure from Chinese slowdown and cascaded tonnage

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The once robust intra-Asia tradelanes are seeing increased freight rate pressure due to the twin challenges of a decelerating Chinese economy and the trend for carriers to cascade bigger ships from deepsea east-west routes.

According to Drewry’s latest Container Freight Rate Insight, intra-Asia freight rates have fallen to their lowest level in four years,with its index plunging 10% in the three months to January 2015 to $900 per 40ft – a 7% year-on-year decline.

Due to the complex network of intra-Asia trades, Drewry’s index is a weighted average of spot container rates across 90 routes in the region, but excludes South Asia and Middle Eastern trades.

Stijn Rubens, senior advisor at Drewry Supply Chain Advisors, said: “Drewry’s Intra-Asia Freight Rate Index, which is typically stable, is now being impacted by the slowdown in the Chinese economy and cargo demand on these key tradelanes.

“Shipping lines have also been deploying larger ships and introducing new services, which has only increased the pressure on intra-Asia freight rates.”

Deepsea carriers deploying their own tonnage on intra-Asia routes were badly hit by the slowdown in the fourth quarter of last year, as shown by OOCL’s Q4 operational report, released at the end of January, which showed volumes on intra-Asia/Australasia, traditionally its biggest tradelane, were down by 7% compared with the same period in 2014.

Similarly, APL’s intra-Asia numbers also tanked in the final quarter – it lifted 6% fewer containers in the final period than in the same three months of 2013, and full-year 2014 volumes declined by 3%.

Meanwhile, intra-Asia commercial feeder operators, such as X-Press, Samudera, Regional Container Lines and Maersk subsidiary MCC, are fighting tighter margins, deepsea carriers services and increased port congestion.

MCC now issues a weekly status report advising the average waiting time for its hub and spoke calls, with the Manila ports for example currently showing delays of between two and three days, although that is substantially less than late last year, when ships routinely had to wait a fortnight before a berth became available.

Nevertheless, a 48-hour delay adds significantly to the weekly charter hire bill for feeder operators – although the substantial reduction in fuel costs has mitigated this.

The past few years have seen several feeder operators linking up with deepsea carriers on intra-Asia services to maximise network economy of scale and to provide a vehicle for their domestic boxes, but the threat from the big container lines flooding the market with too much cascaded tonnage is ever present.

“We expect the decline in intra-Asian rates to stabilise as trade picks up following the Chinese New Year holiday, said Mr Rubens. However he warned: “But longer term, rates on these routes will remain under pressure so long as carriers continue to cascade unwanted tonnage on these once buoyant trades.”