Soft Asia-Europe spot rates will harden as peak season approaches
There was evidence this week of continued softer Asia-North Europe freight rates just ahead of ...
Spot rates on the Shanghai Containerized Freight Index (SCFI) for cargo between Asia and Europe, and Asia and US west and east coast ports have continued to track downwards this week.
The SCFI recorded falls of $70 per teu for North Europe, $61 for Mediterranean ports, $253 per feu for the US west coast and a drop of $151 per feu for the normally more robust US east coast market.
Against a backdrop of falling spot rates, slack season general rate increases (GRIs) planned for December on both trades would seem to have little chance of success, not least because shippers do not appear to treat them seriously.
According to container freight broker FIS, the failure of GRIs reflects the “continued weakness in the market”.
It said: “If carriers are serious about significantly increasing rates in the run up to the Chinese New Year [starting 19 February 2015] then substantial GRIs will be required.”
However, carriers on the Asia-Europe and transpacific lanes appear to have almost given up on obtaining rate increases – instead, the main aim of GRIs is to stem the tide of rate discounting and achieve some order of rate stability.
But the financial situation for carriers is nowhere near as precarious as it would have been, but for a 30% plunge in fuel prices, which means breakeven levels have fallen faster than freight rates over the past two months.
Indeed, this scenario of lower bunker costs offering a buffer against eroding rates was predicted by Maersk chief executive Nils Andersen during his company’s third-quarter results presentation. He said he feared that carriers would bank the fuel savings and “probably compete this way”.
Of course, shippers are well aware of the cheaper unit costs enjoyed by carriers and, with capacity still exceeding demand, new GRIs may even have to be postponed until mid-January.
Although there have been announcements of blanked sailings from Asia to Europe and the US, the commencement of the 2M and Ocean Three alliances early next year and the desire of carriers not to lose market share is likely to prove an extra drag on freight rates.
Meanwhile, analyst SeaIntel has introduced a quarterly vessel utilisation measure for the main east-west trades, combining its own supply data with demand figures compiled by Container Trade Statistics (CTS).
SeaIntel found that utilisation levels improved in the third quarter this year, compared with the same period of 2013, in all three major tradelanes.
Working on the nominal capacity of ships – which is always lower than the maximum load factor – SeaIntel said Asia-North Europe utilisation levels were 80.1% in the third quarter, versus 77.6% the year before.
On the transpacific, load factors increased by 7.3% to 83.2% in the same period as shippers brought forward their orders because of the fear of industrial action at US west coast ports.
However, the star performer was Asia to the Mediterranean. SeaIntel chief operating officer and partner Alan Murphy commented: “In Q3 the utilisation level was 88.4%, which makes it the tradelane with the highest utilisation of the three we have examined.”