Cascading of large container ships from the Asia-Europe market into North-South trades is significantly eroding pricing in those markets, according to Drewry.
It said that as of mid-2013 108 ships ranging in size from 7,000 to 10,000 20-foot-equivalent units were operating on the Asia-North Europe market. “All of these vessels will need to be cascaded elsewhere by the end of 2015 or early 2016,” said Drewry container analyst Neil Dekker.
The effects can be clearly seen in the large increase in ship size in key North-South trades since July 2010. In the Asia-East Coast South America market between July 2010 and July 2013, the average ship size increased 41 percent, from 4,193 TEUs to 5,933 TEUs. In the Europe-East Coast South America trade, the size increased 45.3 percent from 4,420 to 6,422 TEUs, while in the Asia - West Coast South America trade the average ship size increased 87 percent from 3,289 TEUs to 6,165 TEUs, Drewry said.
Driving those changes are mega-ships being cascaded into those markets. As of September, the largest ship deployed in the Europe-East Coast South America market was the 8,762-TEU MSC Agadir. The largest ship deployed in the Asia-West Coast South America market was the 9,178 TEU MSC Candice.
The fate of the Asia-Brazil freight rate market shows the impact. Headhaul capacity was up nearly 18 percent between January 1 and July 1 of this year. As that happened, rates plummeted from nearly $2,000 per TEU to under $800 per TEU by August. By early October rates had fallen still further to between $500 and $600 per TEU, with an estimated $152 million in lost carrier revenue just in the first half of the year, according to Drewry. In order for these trades to be profitable, Dekker told the JOC TPM Asia conference in mid-October, “capacity must grow in line with the market. Big ships are not an immediate passport to profitability.”