With container capacity tight on both the Atlantic and the Pacific, how does a carrier decide where to deploy its vessels? Ultimately, it's simple: Wherever the rates and profits are higher. That's why the four carriers that make up the CKYH alliance - Cosco Container Lines, Yang Ming, "K" Line and Hanjin Shipping - are shifting some of their larger vessels to the trans-Pacific trades and replacing them with smaller vessels from the Mediterranean.
It's just one part of a plan by the alliance to beef up its overall capacity on the lucrative Pacific routes, where it is doing everything possible to boost capacity utilization, shorten sailing times and slash operating costs. The alliance has already cut trans-Pacific sailing times by five to seven days through more frequent services, is skipping certain port calls, and has started more services that sail directly from Asian ports to ports on the U.S. West Coast. The alliance is tightening operations in part because of the scarcity of tonnage on the charter market.
Now CKYH is moving some of the larger vessels from its trans-Atlantic routes to the Pacific in preparation for the start of a new all-water service from Asia to the U.S. East Coast, where capacity for the summer-fall peak season is already sold out on many ships. The service is still in the planning stage, and the launch date has not been set, but the vessels are likely to fill up quickly if they can be shifted in time for the peak season.
"We really need the capacity on the Pacific," said Howard Finkel, senior vice president-trade, Cosco North America Inc. "Rates are fairly depressed on the Atlantic, so those trades are very unprofitable."
"We are downsizing the fleet on the trans-Atlantic trades and putting bigger ships on the trans-Pacific trades," said Kazuyuki Oda, senior vice president of operations for "K" Line North America. He said the alliance is taking this step because of the "very tight" charter market.
The alliance will transfer four 3,300-TEU ships from its TAS1 joint service between the U.S. East Coast and North Europe to the Pacific. The move will free up enough ships to start an all-water service from Asia to the U.S. East Coast that may be called AWE4. These vessels are being replaced in the trans-Atlantic by four ships of at least 2,700-TEU capacity taken from the East Coast-Mediterranean trade, amounting to about a 20 percent cut in CKYH's trans-Atlantic capacity.
Capacity of the alliance's U.S. East Coast-Mediterranean TAS3 service was reduced by half several months ago, when three of the four larger ships on the route were replaced with 1,400-TEU vessels. Of the larger ships, only the 2,900-TEU Cosco Norfolk remains on the TAS3 service, but it too will be replaced and redeployed.
The CKYH move is not the first time carriers have shifted capacity to the Pacific. "We've already seen some carriers withdrawing ships from the North Atlantic trade because they can get better returns in the Pacific," said Stephen Edwards, senior vice president and general manager of Atlantic trade at Royal P&O Nedlloyd Ltd. He said Senator Lines, Cosco and Maersk Sealand have already suspended some Atlantic services in order to use the vessels on the Pacific. "What has changed is the scarcity of assets," he said.
The fact that capacity is still relatively tight on the Atlantic poses the question as to why carriers are not finding it profitable to keep tonnage on those routes. Carriers are profitable on the westbound lanes to the U.S., but in most cases they are losing money on the eastbound legs, where U.S. export freight rates are so low that carriers are losing money after paying the cost of port and terminal fees.
Eastbound rates are beginning to move up with the gradual recovery in Europe and the continuing strength of the euro, but they are still not at a level where carriers can resist the lure of the high rates and tighter capacity on the Pacific. For the next year or two, that trend seems certain to continue.