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Asia-Europe spot rates slip below $600 per TEU   14/04/2018
The spot rate from China to North Europe this week fell below container shipping prices on the Asia-Mediterranean trade as the sharp rate decline since Lunar New Year showed little sign of slowing down.

Port of Rotterdam.

With the market deep in the slow season and capacity still coming online, shippers are not in a mood to pay more on the spot market. Above: the Port of Rotterdam. Photo credit: Shutterstock.com.

The Shanghai-Rotterdam rate fell $32 this week to $585 per TEU, now 32 percent lower than at the same time in 2017, according to the latest reading of the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index. It is the lowest level the spot price has been in more than a year and the first time in over 12 months the rate has dropped under the $600 per TEU mark.

China-Mediterranean spot rates, by contrast, have been less volatile and lost $16 this week to settle at $600 per TEU, 27 percent down year over year. The weekly rate movements are tracked by the JOC Shipping & Logistics Pricing Hub.

Carriers are trying to lift the Asia-North Europe and Asia-Mediterranean spot market and increase freight-all-kinds rates from May 1 after customers completely ignored the mid-April increases levied by the lines.

Demand, supply factors

With the market deep in the slow season and capacity still coming online, shippers are not in a mood to pay more on the spot market, and rates will continue to be squeezed as long as supply outpaces demand for containerized services, AlixPartners wrote in a recent container shipping outlook for 2018. The global consultancy said total demand — at the very least — would have to meet expectations of a 4 to 5 percent increase to provide any real opportunity for margin growth.
 
According to IHS Markit data, the global container fleet is projected to expand 4.7 percent this year, just below the projected 4.9 percent increase in global trade. But demand on Asia-Europe in the second quarter is forecast to grow by about 4 percent, less than half the 8.8 percent increase in capacity that is predicted to enter the trade in that period.

While carriers struggle to get rates moving upwards, AlixPartners  believes ongoing fleet consolidation has created a situation where the five top carriers now control almost two-thirds of global capacity. This realignment of ownership has created a unique opportunity for the industry to demonstrate a level of price discipline that has been lacking for years.

But in the report, AlixPartners said it was imperative that carriers curb their voracious appetites for new ships. “New orders slowed, and deliveries were deferred during much of 2017, but in September, the buying spree resumed in earnest, thereby ensuring the continuation of the current margin-crushing balance of supply and demand unless scrappage activity accelerates dramatically,” the consultants wrote.

Of the container carriers with the largest orderbooks, only six are among the Top 10 carriers globally. Some carriers, such as MOL and Hapag-Lloyd, have had clear orderbooks for some time. The TEU volume of ships on order as a percentage of the active fleet is down, at 14 percent, when taking into account Hyundai Merchant Marine's recent announcement that it will order 20 new vessels. This is well below the 20 percent seen in 2015, according to IHS Markit ship data.

 




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