Asia-Europe spot rate edges up before Feb. 1 increases

Asia-Europe spot rate edges up before Feb. 1 increases

Rates are rising in the build up to Lunar New Year. Photo credit: Hapag-Lloyd.

Spot rates on the Asia-Europe and Mediterranean trades improved slightly ahead of the Feb. 1 increases that will be levied by the carriers next week, but there is still no sign of the large-scale sailing withdrawals expected before the Chinese New Year holidays start in three weeks.

Rates from China to North Europe rose by $16 to $907 per TEU and China-Mediterranean rates were up $11 to $772 per TEU, according to the latest reading of the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index. The weekly rate movements are tracked at JOC.com’s Market Data Hub.

Asia-Europe rates are still 13 percent below where they were at the same time last year, and rates to the Mediterranean are down by 21 percent. There are more rate increases planned for Asia-Mediterranean than Asia-North Europe, and none of them are below $1,000 per TEU. Hapag-Lloyd is leading the way with an interesting $1,500 rate increase on Asia-Mediterranean from Feb. 1.

Year-over-year rate comparisons will not be as impressive in 2018 as they were last year. The first half of 2016 was arguably the lowest point in container shipping history on the Asia-Europe trade with spot rates falling to less than $200 per TEU. Rates steadily improved and better capacity management by carriers met rising demand to push up freight rates in 2017 to well above the 2016 levels for much of the year.

Rising average revenue per TEU saw carriers posting solid increases in profitability in the first three quarters of 2017, and the first indications that the full year will also be a highly profitable one were revealed by OOCL in its fourth-quarter operational update released today. The performance shows that an improvement in net earnings has continued to the end of 2017 with OOCL reporting a 43 percent increase in 2017 revenue. This was a result of Asia-Europe volume growing 20 percent year over year and average revenue per TEU across all trades for the year rising by 11.4 percent.

Whether that profitability in Asia-Europe continues in 2018 is largely in the hands of the carriers. Container volume on the trade is forecast by IHS Markit to grow by 4.5 to 4.9 percent but there is a huge amount of capacity scheduled to enter service this year, much of it mega-ships that can only be deployed on the Asia-Europe routes.

The total new container ship capacity due to be delivered in 2018 will come to about 1.3 million TEU, according to IHS Markit, and approximately 30 percent of that new capacity will be for mega-ships of 18,000 to 25,000 TEU. Cosco Shipping, the carrier with the industry’s largest order book, has so many large vessels coming online that it has decided to defer delivery of 10 mega-ships with a total capacity of 166,576 TEU to 2019.

With just three weeks until the beginning of a Lunar New Year factory shutdown, carriers have yet to announce the large number of sailing withdrawals on Asia-Europe and the Mediterranean that are expected during the slow period that follows the mainland’s main holiday.

SeaIntel said that on Asia-North Europe, carriers have on average blanked just 69 percent of the total blanked capacity four weeks prior to the Lunar New Year, increasing that to 74 percent, 82 percent, and 98 percent in weeks three to one. The analyst said irrespective of which pattern was used as a guide, an additional 55,000 to 60,000 TEU was expected to be blanked, either with 80 percent happening in the next week (as in 2017), or with half gradually over the next three weeks, and then a 30,000 TEU spike one week prior to Chinese New Year.

On Asia to Mediterranean, carriers have on average blanked just 70 percent of the total blanked capacity four weeks prior to Lunar New Year, and SeaIntel said this increased to 78 percent, 82 percent, and 98 percent in weeks three to one. Using 2017 as a guide, no more blank sailings are expected for 2018, while if the average of 2013 to 2017 is used as guide, the analyst does not expect any blank sailings over the next three weeks, with the announcement of 30,000 TEU to be blanked coming just one week prior to the Feb. 16 start of the Chinese holiday.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.