Ocean carriers deploying new mega-ships are undermining freight rates on the Asia-Europe trade, and the cascading of vessels is putting pressure on other lanes, according to Hanjin Shipping’s top container shipping executive.
Like all carriers, Hanjin is interested in deploying eco-friendly ships that cut fuel and slot costs, but not at the risk of further deterioration in Asia-Europe rates, said Young-Kyu Song, chief executive of the Korean carrier’s container business unit.
“We will not make any decision that will worsen the current situation in the trade,” he told The Journal of Commerce. “Considering the current oversupply situation in Asia-Europe trade, deploying new ULCCs (ultra-large container carriers) and lowering freight rates to cover the supply seems like an inappropriate decision despite the advantage of low cost.”
Asia-Europe rates have fallen some 50 percent amid weak demand and increasing capacity, particularly with the arrival of new vessels capable of carrying 10,000 20-foot equivalent container units or more.
This has had implications globally as the previous 8,000-TEU Asia-Pacific workhorses have shifted to the trans-Pacific and intra-Asia trades.
On the Asia-U.S. trade, carriers have increased capacity by deploying mega-ships to East Coast ports through the Suez Canal. “This may be a rational decision for carriers who are feeling the pressure on demand and supply in Asia-Europe trade,” Song said. “However, continuous increases in supply in the trans-Pacific trade is also a risk. Hopefully, the U.S. economy shows steady recovery.”
In terms of volume growth, the intra-Asia trade continues to show gains but is also at risk from oversupply caused by cascading of ships from Asia-Europe and the trans-Pacific trades. This could result in “severe freight rate competition,” Song said. “Especially, with Iranian sanctions starting from the second half of the year, carriers are likely to compete over the Middle East market.”
The current outlook for Asia-Europe is its grimmest yet, with demand weak from northern and southern Europe and more mega-ships due for delivery later in the year, Song said.
The “massive losses” on freight rates this year will force lines to control supply to return finances to “sustainable” levels, he said. This will spur carriers to return of chartered or uneconomic vessels and to increase scrapping of older ships. “Additional slow-steaming will be carried out as long as it does not affect schedule reliability,” Song said.
Declining bunker prices is easing cost pressure on carriers, however, and Hanjin’s own performance is improving. First quarter revenue at the South Korean carrier surged 14.1 percent, and volume grew 8.7 percent compared to a year earlier.
“Especially, we experienced remarkable increases in volumes on trans-Pacific eastbound and intra-Asia,” he said. “Hopefully, this trend will continue in the second and third quarters with the annual peak season approaching.”
Song warned, however, that “growth ratios may slow down compared to that in the first quarter as a result of the economic depression in the Eurozone.”
Still, “We expect to continue to show positive improvement in our performance this year as we have been expanding cooperation with partner carriers while developing new markets, continuously reducing operating costs, rationalizing service networks and extending slow-steaming,” he said.
Contact Mike King at firstname.lastname@example.org.