Ocean carriers are paying a heavy price for failing to rein in capacity on the Asia-Mediterranean route despite the deepening economic crisis across southern Europe, according to shipping consultant Drewry.
Traffic is stalling, freight rates have tumbled more than 40 percent since the beginning of the year and ships are sailing half full on the eastbound leg to the Far East.
“Unsustainable sovereign debt remains the central problem in the Mediterranean, which requires severe austerity measures, for which there is no quick fix,” the London-based consultancy said.
“Despite this, ocean carriers appeared to continue in ‘wait and watch’ mode as few charges were made to their schedules in the first quarter.”
Carriers responded to the weaker market by tweaking port rotations, upgrading vessels and canceling sailings. Vessel capacity on the main haul westbound trade totaled 449,126 20-foot-equivalent units in March, slightly less than in October, but then jumped to 461,995 TEUs in April.
While carriers pulled seven sailings in March, they only canceled one in April, according to Drewry.
Cargo shipped from Asia to the Mediterranean in the first quarter grew slightly to 366,000 TEUs from 356,000 TEUs in the previous three months and 355,000 TEUs in the third quarter of 2012.
Eastbound traffic totaled 162,000 TEUS in the first quarter, down from 166,000 TEUS in the final three months of 2012 but up 5 percent on July-September 2012.
Pulling services isn’t easy on the route as MSC, the market leader, only operates two loops, as do the G6 Alliance and Zim Integrated Shipping Services. Maersk/CMA CGM and the CKYH Alliance, with three loops, could more easily rationalize their services but would expect their rivals also to cull capacity.
The result of carriers’ inaction is that the average utilization of ships sailing from the Far East to the Mediterranean only rose from 71.2 percent in February to 80.5 percent in March, driven by the recovery of cargo after the Chinese New Year holidays.
Utilization on the smaller eastbound leg reached 50.2 percent in March, an improvement from February’s 45.6 percent that was also wholly due to a rebound in traffic after the Chinese vacation.
Spot rates from Shanghai to Genoa, Italy, slumped to $1,461 per 40 foot container in mid-May from an average of $2,489 in January.
“Even in the niche market of the Black Sea, the rate war between direct services and transhipment operators was described as a blood bath,” Drewry said.