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Asia-Europe rate push fails ahead of capacity cuts    08/07/2019
Carriers are battling to lift rates on Asia-Europe, despite announcing significant capacity withdrawals

Asia-Europe rate increases by carriers have failed to lift the market despite announcements that a large amount of capacity will be removed from service through July and August.

Freight-all-kinds (FAK) increases from July 1 of up to $1,100 per TEU from Asia to North Europe, and $1,000 per TEU on Asia-Mediterranean, could not stop the spot rate falling below $700 per TEU, according to the July 5 reading of the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI).

Tracked weekly at the JOC Shipping & Logistics Pricing Hub, Asia-North Europe rates fell to $688 per TEU, taking prices towards the deep March lows experienced after Chinese New Year when the rate hit $638 per TEU. The Asia-Mediterranean spot rate has held up slightly better and is at $705 per TEU.

Despite another round of rate increases planned for July 15 to take advantage of peak season shipments on the trade, carriers are withdrawing a significant amount of capacity through July and August to better align with weakening demand.

The Ocean Alliance will blank four sailings during the period, taking 66,900 TEU out of the trade over a four-week period, according to Alphaliner. This comes just days after THE Alliance announced four blanked sailings of its own that will remove 67,000 TEU in July.

Gloomy peak season view

It is a clear signal that carriers are taking a pessimistic view of the Asia-Europe peak season this year amid a slowdown in the major European economies and weakening factory output in China.

SeaIntelligence reports that nine sailings have been blanked on the Asia-North Europe trade from Week 29 to 33, and four sailings on the Asia-Mediterranean route from Week 30 to 34.

 

Alan Murphy, CEO of SeaIntelligence, said although it was not unusual for carriers to blank sailings over the third quarter peak season, “it does suggest that their plans have not been met by reality.

“On the other hand, you could argue that it is better that the carriers over-supply and then blank the difference, rather than risking severe capacity shortages, but either way cargo is going to be rolled,” Murphy predicted.

The 2M Alliance of Maersk Line and Mediterranean Shipping Co. is not planning any blanked sailings in July and August, a spokesperson for Maersk told JOC.com.

“We constantly review our service network to meet our customer’s increasing need for reliable cargo delivery, and took steps to adapt to any external factors earlier this year,” she said.

Maersk revised its Asia-Europe services from March, cutting eight port calls in the network, but the carrier said this would not affect its product offering as duplicate calls and transshipment options would be added, as would six extra vessels across 10 strings. Capacity levels would be maintained through slower sailing speeds.

Felix Heger, DHL Global Forwarding head of ocean freight and China rail, said the demand signs over the next couple of months were not very positive.

“An increasing number of blank sailings has been announced, which is a sign that carriers follow the same train of thought,” Heger said. “More blank sailings mean an adverse effect on transport reliability in the short term, and we are indeed likely to see this from some carriers in the second half of this year.”

Supporting this view of weakening demand is the IHS Markit/Caixin China General Manufacturing Purchasing Managers’ Index (PMI) that in June slid to its second-lowest since June 2016, indicating a clear contraction in the manufacturing sector.

It was equally uncertain at the other end of the Asia-Europe trade, where the IHS Markit Eurozone Manufacturing PMI revealed that operating conditions in Europe deteriorated for a fifth successive month during June.

“Eurozone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years,” said Chris Williamson, chief business economist at IHS Markit. JOC.com is a unit of IHS Markit.




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