Asian exporters have been warned to expect sudden cancellations of shipping services and rejigged schedules to Europe as ocean carriers scramble to reverse an accelerating collapse in freight rates.
The Asia-Europe container trade is “five to six weeks away” from negative base freight rates which it last experienced during the rate wars in 2011, according to Lars Jensen, chief executive of SeaIntel Maritime Analysis.
“The rate war in 2011 has never stopped,” and carriers will have to blank sailings and cull capacity after recent general rate increases failed to stem the market decline, Jensen told the Global Liner Shipping conference in London.
Asia-Europe spot freight rates dropped to $875 per 20 foot container on Friday, down $500 in five weeks, driven by a mismatch between sluggish demand growth and the delivery of large container vessels onto the route.
Rates are falling by $60/TEU a week, triple the rate of erosion following the “so-called” end of the 2011 rate war, Jensen said.
Carriers must remove capacity to shore up the market because the general rate increase model “is becoming broken.”
“The GRI has become a tool to get rates up to the level they were when the GRI was announced,” Larsen said. They are no longer a means of increasing rates but of slowing the rate of erosion.
The $700/TEU GRI of March 1 achieved an increase of $424 but rates ended up only $97 higher than at the time of the announcement.
Maersk Line, the Asia-Europe market leader, delayed a $500/TEU general rate increase scheduled for April 15 to May 1, and its rivals also pulled hikes or postponed them to mid-May.
Maersk Chief Executive Soren Skou warned carriers face an all-out rate war unless they take immediate action to reduce capacity in line with market demand.
Demand on the Asia-Europe trade grew just 0.4 percent in February and is set to increase by 2 to 3 percent at most this year, while capacity will grow 10 percent as carriers introduce new ships, SeaIntel’s Larsen said.
The trans-Pacific trade might appear more stable, but the underlying situation is the same as the Asia-Europe route, with accelerating rate erosion.
“If you think the market’s been volatile in the last couple of years ... it’s going to get worse,” Larsen said.
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