Ocean carriers scored big with Asia-Europe spot rate hikes last week after weeks of decline, but Drewry says sustaining that uptrend on a trade lane marked by falling demand and overcapacity will be an intense struggle as more monster ships are set to flood the route.
In its latest analysis, Drewry said rates on the Asia-Europe route surged by 153% last week following 14 weeks of decline. The World Container Index (WCI) benchmark for Shanghai to Rotterdam went from a data series low of US$670 per 40-foot container to $1,698 per 40-footer.
However, carriers, even after the latest jolt, are still saddled with spot rates that remain well below where they stood for much of last year. Moreover, the rate trend based on WCI data reveals a general weakening of volumes in three of the four largest deep-sea trades, and the Asia-to-Europe trade is the most worrisome of these.
The maritime research and advisory group said latest statistics show that combined Asia-to-Europe and Mediterranean volumes declined for the first time in over two years in the first quarter, registering a 1% fall against the same period in 2014.
China’s share of exports in this market has eroded slightly in the previous three quarters but it remains relatively constant in the low 70% range. Through its loose peg to the US dollar, China’s goods are becoming more expensive to a European market that remains in a near recessionary state, boding ill for the rest of the year.
It is likely that other Asian trading nations such as Vietnam will continue to increase its share of the market—Vietnam had 4.1% share of Asia-to-Europe container trade in 2014, up from 3.7% in 2013—but as China is so far ahead any slowdown will be impossible to completely cover.
The weak demand story is compounded by the large number of container ships that are due to be deployed on the Asia-Europe routes. From May until the end of 2015 there is 630,000-TEU worth of capacity from new ships of 10,000 TEUs and above scheduled for delivery, with similar levels slated for 2016 and 2017. The orderbook for 2018 and 2019 is already filling up and the data in the chart does not include reportedly imminent big new orders from Maersk Line and China Cosco.
Drewry assumes that all of the 14,000+ TEU vessels—cumulative capacity of 503,000 TEUs for the remainder of 2015—will enter the Asia-Europe trade, which poses a huge risk to carriers in a slowing market. Moreover, the 10,000-TEU newbuilds will make it harder to cascade smaller ships currently deployed in Asia-Europe into other trades.
“The rush to order the biggest containerships might pay off in the long run but, at present, that gamble has backfired and carriers are faced with overcapacity in Asia-Europe, making it very difficult to see how rates will become sustainably profitable,” said Drewry.
Photo: Procsilas Moscas
