Asia-North Europe carriers hold on to spot rate gains

Asia-North Europe carriers hold on to spot rate gains


Tightly managed capacity and rate increases has kept rates positive on Asia-Europe. Photo credit: Shutterstock.com.

The Asia-North Europe spot rate is now just 3 percent below where it was at this point last year, rising for the third consecutive week and building on a rebound since hitting a 12-month low in mid-October.

An aggressive capacity management program by the carriers combined with a Nov. 1 freight all kinds (FAK) rate increase on the Asia-North Europe trade has supported the spot price gains.

Over the next three months, carriers will cancel at least 24 sailings in a bid to better match capacity with slowing demand. Much of the blanked sailings in November through January are within services offered by the Ocean Alliance and THE Alliance, although 2M carriers Maersk and Mediterranean Shipping Co. have extended the suspension of their joint AE2/Swan service until January.

The Asia-North Europe rate this week rose by $22 to $729 per TEU, as assessed by the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI) and tracked weekly on the JOC Shipping & Logistics Pricing Hub, but is still well below the level regarded by analysts as break-even. BIMCO’s chief shipping analyst Peter Sand said in a recent report the spot rates have been at loss-making levels all year.

Carriers are reluctant to give an exact break-even rate figure on the trade, although it is widely accepted to be about $900 per TEU, a level that was only breached this year during a six-week period from the beginning of January.

But from late November to early December, the breakeven point for Asia-North Europe rates will be even higher as carriers begin to operate their ships on the more expensive low-sulfur fuel, currently at a 50 percent premium over high-sulfur fuel oil (HSFO).

Spot market concern

While longer-term contracts are negotiated with shippers and forwarders and the additional low-sulfur fuel cost will be built into the agreed rate, carriers have expressed concern over their ability to recover the fuel cost from the more volatile spot market. 

In a bid to address this, several carriers this week announced low-sulfur surcharges effective from Dec. 1 on spot rates and contracts with a duration of less than three months. Using CMA CGM’s online tariff calculator, the surcharge on Asia-North Europe will be $120 per TEU, while HMM will charge an additional $112 per TEU.

With less than two months until the end of the year, carriers on Asia-North Europe are determined to avoid any damage to profitability from the rising fuel costs by limiting excess capacity on the trade. According to an S&P Global Platts report, carriers are also counting on demand increasing through November-December as shippers get their cargo on the water ahead of an early Chinese New Year that falls on Jan. 25.

Market outlooks from carriers show contrasting expectations. Maersk, which will announce its third quarter results Nov. 15, took an upbeat view, and citing a reduction in fuel prices that have declined since April, the Copenhagen-based carrier upgraded its full-year earnings (EBITDA) guidance from $5 billion to between $5.4 billion and $5.8 billion. Maersk attributed the increase in guidance to improved reliability and capacity management, in addition to continued margin improvements.

Cosco Shipping Lines is also expecting an improved market to build on its profitable third quarter, which saw group net profit increase 7 percent year over year to $128 million, unlike Ocean Network Express (ONE). Despite reporting a strong improvement in profitability during its second fiscal quarter ended Sept. 30, ONE expects rates to deteriorate on Asia-Europe and demand to fall on the major east-west trades. As a result, the carrier has lowered its full-year expectation for fiscal 2019 to a net profit of $60 million, down 33.2 percent over previous guidance.

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