Fears of volatiltiy on Asia-Europe trade with huge capacity injection

6th September 2017

SHIPPERS and forwarders are preparing for cancelled sailings and even scrubbed services, as container shipping lines scramble to soften the impact of a huge injection of capacity on the Asia-Europe trade in the coming two years.

The 23 per cent surge in capacity forecast by industry analyst SeaIntel jeopardises carriers' improving fortunes; after six straight years of financial losses totalling billions of dollars, they're set to end the year with a collective profit of US$5 billion, according to London-based Drewry Shipping Consultants.

Other than tightening capacity on the eastbound Europe-to-China trade ahead of the launch of the new shipping alliances in April and a peak-season surge in volumes that triggered congestion at Chinese and European terminals, the trade has been relatively calm, reported IHS Media.

The tightening balance between supply and demand has kept spot rates generally steady, although they've declined from their early 2017 highs of $1,100 per TEU from Shanghai to Rotterdam, according to the Shanghai Containerised Freight Index. Westbound spot rates are up by one-third compared to a year earlier.

However, the deployment of 78 vessels capable of carrying more than 14,000 TEU between now and the end of 2019 will challenge that stability. The discipline will hold for some time, but new capacity hitting the water over the next two years will pressure service integrity, according to vice president and head of ocean freight and China rail Europe at DHL Global Forwarding, Felix Heger.

"Carriers will not want to let rates slide again (so) this available capacity has to be managed with potential for cancelled sailings or services and corresponding effect of short notice fluctuations in the available weekly space," Mr Heger was quoted as saying.

"This can be very disturbing and (make planning difficult) for supply chain managers of shippers and consignees concerned with steady flow of cargo. We are striving to provide this stability through a broad basis of partner carriers."

Rotterdam-based SeaIntel was cited as saying that "only the optimistic scenario of annual sustained eight per cent demand growth over the full period, including 2017, will be sufficient to absorb the new deliveries."

Container Trades Statistics CEO Rod Riseborough said overall volume growth on Asia-Europe headhaul and backhaul trades was well above average. He expects growth to continue through the rest of this year and perhaps into 2018.

"At the moment, there appears to be nothing on the horizon, other than seasonal factors such as the peak season and the following reduction in flows, that will affect the import trade for the balance of 2017, although the high value of the euro may go some way to maintaining the five per cent growth rate we have seen so far," added Mr Riseborough.