Asia-Europe carriers reinstate sailings, limit capacity cuts

Europe

Rates on Asia-Europe remain well above last year’s levels, and carriers are bringing back capacity to cover demand. Photo credit: Shutterstock.com.

Asia-Europe freight rates flattened in the past few weeks as carriers reinstated several blank sailings and introduced extra loaders in what analysts see as a response to cutting too much capacity amid stronger-than-expected volume on the trade.

The China-North Europe spot rate edged down 1.4 percent in the past week to $907 per TEU, while the China-Mediterranean (Med) rate of $940 per TEU is down 1.2 percent, according to the Shanghai Containerized Freight Index (SCFI). 

Weekly rate movements are tracked at the JOC Shipping & Logistics Pricing Hub, where the continuing strength of the spot market can be seen despite the coronavirus disease 2019 (COVID-19) impact on demand. On Asia-North Europe routes, the spot rate is 32 percent above year-ago levels, and the Asia-Med rate is 33 percent higher.

Volume data on the Asia-Europe trade lags by two months, with the last available numbers for May showing a drop in volume of 14.6 percent, according to Container Trades Statistics (CTS). Carriers in the first five months carried almost 1 million TEU fewer than the same period in 2019, with the demand falling sharply from February.

However, the volume carried on Asia-Europe in May was an improvement over April, which recorded a 20 percent decline. While June numbers will only be available in August, the volume data is trending upwards, with European retail outlets open again and factories resuming production. 

Asia-Europe has seen 18 of 189 scheduled blanked sailings being reactivated in the past few weeks, according to Sea-Intelligence Maritime Analysis, with only two new blank sailings announced in week 29 (July 13–19). In its latest Sunday Spotlight, the analyst said fewer new blank sailings indicated a belief by carriers that current capacity cuts were adequate, considering the reinstated sailings.

“While we should caution that this could simply be a question of the carriers being too optimistic, or alternatively that they are planning to sail heavily underutilized for the peak season, this is likely not the case, as the carriers have throughout the pandemic shown an incredible affinity for balancing supply to demand, in order to keep freight rates up,” the analyst noted.

Rates at 10-year highs

This has been particularly effective on the trans-Pacific, where a spike in imports from Asia consisting of seasonal merchandise, personal protective equipment (PPE), and goods that retailers required for inventory replenishment — coupled with canceled sailings — kept spot rates at 10-year highs.

In addition to the reinstated Asia-Europe sailings, Alphaliner said starting from July 28, THE Alliance will offer four weekly loaders using 6,300–10,000 TEU ships, with extra sailings added subject to demand. 

“THE Alliance’s extra sailings echo the sentiment that the carriers’ capacity management plans were on the pessimistic side, with more extensive cuts than needed in some instances,” Alphaliner noted in its latest newsletter. The planned itinerary of the extra sailers follows a rotation based on the suspended FE4 loop and covers Busan, Shanghai, Ningbo, Yantian, Singapore, Southampton, Hamburg, Antwerp, and Rotterdam. The ships then return to Busan via Singapore, Hong Kong, and Yantian. 

Curiously, the Ocean Alliance has blanked relatively little capacity when compared with the other two carrier alliances. Sea-Intelligence said this could be because 2M and THE Alliance are focused on medium-term service suspensions, while Ocean Alliance is focused more on ad-hoc blank sailings, announced with a shorter notice period than the service suspensions. 

“If this is the case for the coming weeks, as it has been for most of the past weeks, it means that we should expect the actual future blank sailings levels for Ocean Alliance to reach the same relative share of their total capacity as 2M and THE Alliance,” Sea-Intelligence noted. 

All three alliances have a higher percentage of blanked capacity though the end of September (week 40) compared with 2019. For 2M, 24 percent of 2020 capacity has been blanked versus 5 percent in 2019, the Ocean Alliance is at 14 percent versus 6 percent, and THE Alliance has 24 percent blanked versus 10 percent last year. 

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.

 

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