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Asia-Europe carrier capacity management allows rate hikes to take hold    04/11/2019
Spot rates on the Asia-North Europe trade rose sharply this week as carriers imposed the Nov. 1 increases on the market on top of a blanked sailings programme.

Asia-North Europe rates shot up 16 percent this week, buoyed by carriers withdrawing capacity from the trade and Nov. 1 rate increases.

The rate from Shanghai to North Europe rose $113 to $707 per TEU, according to the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI). Weekly rate movements tracked by the JOC Shipping & Logistics Pricing Hub shows the 15.9 percent increase took the rate back to pre-Golden Week levels.

The timing of the rising rates could not be better for carriers. With the IMO 2020 low-sulfur fuel regulations approaching, carriers want to see higher rates, especially as they start to renegotiate annual contracts.

“The rate increase will depend on the booking situation, which is strong right now due to void sailings. Utilization for some ships is 100 percent, others have some space left,” S&P Global Platts noted in its latest report on container shipping. 

The analyst said that although carriers were trying to help rates by announcing more void sailings, they were also counting on demand increasing through November-December as shippers get their cargo on the water ahead of an early Chinese New Year that falls on Jan. 25.

“Volume should rebound by mid-November, but it is hard to tell if it will be a quick rebound or not,” a forwarder told Platts. “Last year, the rebound was quick.”

Carriers have been blanking sailings since the beginning of October, and over the next three months will cancel at least 24 sailings in a bid to better match capacity with slowing demand. Much of the blanked sailings are within services offered by the Ocean Alliance and THE Alliance, although 2M carriers Maersk and Mediterranean Shipping Co. have extended the suspension of their joint AE2/Swan service until January.

The capacity management strategy appears to finally be paying dividends for carriers after surplus capacity and falling demand growth dragged down rates that fell to 12-month lows before bottoming out at $580 per TEU on Oct. 19.

But carriers have contrasting outlooks for the next few months. Maersk took an upbeat view, and citing a reduction in fuel prices that have declined since April, the Copenhagen-based carrier upgraded its full-year earnings (EBITDA) guidance from $5 billion to between $5.4 billion and $5.8 billion. Maersk attributed the increase in guidance to improved reliability and capacity management, in addition to continued margin improvements.

Cosco Shipping Lines is also expecting an improved market to build on its profitable third quarter, unlike Ocean Network Express (ONE). Despite reporting a strong improvement in profitability during its second fiscal quarter ended Sept. 30, ONE expects rates to deteriorate on Asia-Europe and demand to fall on the major east-west trades. As a result, the carrier has lowered its full-year expectation for fiscal 2019 to a net profit of $60 million, a decrease of 33.2 percent over previous guidance.


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