Soaring China exports unable to lift spot rates

Soaring China exports unable to lift spot rates

In September, the Port of Long Beach saw container throughput grow by 28.3 percent year-over-year.

Credit: POLB

Container exports from China shot up by 11.1 percent in September during the healthiest peak season period in years, but the steady decline in freight rates across all trades continued despite the double-digit year-over-year increase.

Including Hong Kong, the volume growth for China’s January through September was up 9 percent compared with the first three quarters of 2016. A total of 192 million TEU crossed the busy wharves of Hong Kong and China’s top ports, according to the latest Alphaliner data.

The analyst said the strong cargo showing just ahead of the Chinese Golden Week holidays from October 1-8 reflected a strong peak season, but it added that unlike other peak periods, there were no reports of space shortages.

This seems to be where an explanation can be found for the high-volume-yet-declining-rates puzzle that has characterised the 2017 peak season. Alphaliner said carriers mounted multiple extra loaders to cater for the additional demand, an action that mystified BCOs attending the JOC’s TPM Asia conference in Shenzhen.

While unwilling to go on the record, a global beneficial cargo owner highlighted how rates on Asia-Europe for the year were relatively strong through the first half and profitability improved dramatically for most of the carriers, allowing them to finally begin to tackle high debt levels.

“But then what do they do? They deploy extra loaders and the freight rate starts to come down, to the point where we have now seen the rate dropping every week since July, right through the best peak season the carriers have seen in years. Where is the sense in that?” he told JOC.com.

While the total TEU capacity deployed in these extra loaders is not yet available, SeaIntel data shows the Asia-North Europe trade will be saddled with a 14 percent excess of capacity in the fourth quarter that will require the blanking of 193,000 TEU.

Nicolas Sartini, CEO of APL, said carriers were used to volume going up and down and supply not matching demand and it was simply part of the industry. He said there are three alliances on Asia-Europe and they would blank sailings, adding that Asia-Europe trade was 250,000 TEU a week and with 5 percent growth the trade would need an additional capacity of 12,500 TEU every single week.

“Sometimes there is a misalignment between capacity and demand, but we know how to handle these situations. It is more important that we have solid demand because that is an indication that the world is doing well,” he said.

The solid demand recorded in the first half has continued through the third quarter. Alphaliner said global container throughput growth was on track to exceed 6 percent in 2017 that is expected to lift the TEU-to-GDP multiplier to 1.7 times global GDP growth, reversing the recent downward trend that has seen the multiplier drop to below 1 in the previous two years.

“Predictions that the container trade had reached a mature phase of its development, with volume growth expected to grow only on par with GDP, proved to be overly pessimistic, even though container volume growth is unlikely to see a return to the two to three times GDP ratio that it had enjoyed prior to 2008,” the analyst noted.

Despite strong increases in container volume, JOC.com’s Market Data Hub, which tracks the weekly movement of rates on the Shanghai Shipping Exchange’s SCFI, reveals the downward track of freight rates on the Asia to US West and East coasts, Asia-Europe, and Asia-Mediterranean.

On Asia-US West Coast, rates began to decline after July 28, and on the Asia-US East Coast trade the decline began in early August, with both the rates on routes 30 percent below where they were at this time in 2016.

Yet ports across the US continue to report record increases in volume. In September, the Port of Long Beach saw container throughput rocket by 28.3 percent, the Port of Virginia was up 8.2 percent, and South Carolina Ports Authority reported a 10 percent growth in container volume during the month. The Port of Savannah handled more than 1 million TEU in the first quarter of its financial year 2018 (July 1-Sept. 30), growing by 5.8 percent year-over-year. Savannah’s September volume was up 5.4 percent.

Asia-Europe has experienced greater stability than the US routes and the rate for much of the year has been higher than the lows of 2016. However, the decline since the beginning of the peak season in July has been steeper than that experienced on routes across the Pacific, and the rate this week is 40 percent lower than where it was at the beginning of July. The Asia-Med dropped 45 percent over the same period.

Most of the Europe port throughoput figures are not yet in, although Rotterdam volume was up 10 percent in the first nine months of 2017 to 10.2 million TEU. Solid performances are also expected at Antwerp, Le Havre and Hamburg.

Carriers are aggressively trying to raise rates on the Asia-Europe/Med and Asia-North America trades, with some carriers, such as Hapag-Lloyd, hitting the market with a rate increase every two weeks until mid-November.

These are the FAK rates announced to the Asia-Europe/Med trade, and the general rate increases on the trans-Pacific so far:

Asia-North Europe westbound per TEU

Oct. 15: CMA CGM, “K” Line $900; Hapag-Lloyd $950; APL (Busan to Antwerp) $950.
Nov. 1: “K” Line $1,000; CMA CGM $1,050; Maersk Line (Shanghai-Rotterdam) $1,100; Hamburg Sud $1,050; APL (Busan-Antwerp) $1,100; MSC (Shanghai-Antwerp) $1,100.

Asia-Mediterranean westbound per TEU

Oct. 15: “K” Line (East Med) $1,000; Hapag-Lloyd $1,300.
Nov. 1: “K” Line $1,000; CMA CGM (West Med) $1,100; APL (West Med) $1,100.

Asia-North America eastbound per FEU

Oct. 15: OOCL (Canada) $600; Hapag-Lloyd $700; MOL $1,200.
Nov. 1: OOCL (Canada) $600; Hapag-Lloyd $700; APL $1,000; MOL $1,200.
Nov. 15: Hapag-Lloyd $700.

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

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Interesting how good market news is greeted by carriers - lower the rates!!

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