Alliances advise market of blanked Golden Week sailings

Alliances advise market of blanked Golden Week sailings

Carriers are cutting back on tonnage on the world's busiest east-west trade lanes.

The first blanked sailings are beginning to come in with the Ocean Alliance and THE Alliance announcing cuts to Asia-North Europe, Asia-Mediterranean, and Asia-US services out of China in October during the Golden Week holidays.

Ocean Alliance carriers will withdraw two services on Asia-Europe originating in China and two on the Asia-Mediterranean trade, while THE Alliance members will cancel two China-US West Coast Services and one from China to the US East Coast.

On the Ocean Alliance’s Asia-North Europe network, the Loop 3 westbound service using Cosco Shipping’s Taurus that was scheduled to arrive in Ningbo on Oct. 7 and the eastbound service out of Antwerp on Nov. 11 have been withdrawn.

Also being canceled is Loop 5 on CMA CGM’s 13,344-TEU Christophe Colomb that was to arrive on Oct. 8 in Qingdao and then in Rotterdam on Nov. 13.

The Taurus is a 14,000-TEU vessel operated by Evergreen, and while the blanking of services is an alliance-wide move, it highlights the difficulties in filling these large vessels. There are significant unit cost savings to be gained from operating ships of this size and above, but only if the vessels are full. When the ship’s utilization falls, unit costs immediately start to rise.

On the Asia-Mediterranean trade, the WM1 service westbound, with Cosco Faith scheduled to arrive Qingdao on Oct. 9 and eastbound scheduled to arrive La Spezia on Nov. 10 have been withdrawn. WM2 has also been blanked, with CMA CGM Callisto scheduled to arrive in Qingdao on Oct. 4, and in Valencia on Nov. 7.

On the Asia-US West Coast trade, THE Alliance has announced that it is withdrawing the PS4 service that was scheduled to depart Hong Kong for Los Angeles on Oct. 8, and depart Los Angeles for Hong Kong on Oct. 26. Also being blanked is the PS6 service leaving Qingdao on Oct. 6 and departing Long Beach on Oct. 26.

The EC3 service on the Asia-US East Coast trade that leaves Kaohsiung on Oct. 6 and Savannah on Nov. 8 will also be withdrawn.

Shippers should be prepared for additional blanked sailings as the peak season enters its slow fourth quarter that follows China’s National Day holidays that begin on Oct. 1. Because even as volume on the Asia-Europe and Asia-US trades begins to slow, capacity will continue to come online.

According to SeaIntel, megaship capacity on the trade will grow by 12 percent in the fourth quarter, and it is the Ocean Alliance that will receive the lion’s share. When the second half of 2017 is compared with the second half of 2019, the analyst found that the 2M Alliance will only experience 3.2 percent growth in deployed capacity, while THE Alliance will see growth of 11.9 percent in its deployed capacity. Ocean Alliance, by comparison, will see a significantly higher capacity increase of 24.6 percent in the same period.

Xeneta CEO Patrik Berglund said megaships made sense in terms of economies of scale and optimizing transport costs, but the capacity injection required a huge demand increase.

“Megaships of 18,000 TEU need to command utilization rates of at least 91 percent to achieve cost savings,” he said. “Even in the high volume Asia-Europe trades that is difficult and may necessitate lower than average rates for some volume, which, inevitably, will hit overall rate development.

“Each of the key alliance partners is playing catch up with one another, trying to reap the megaship benefits. In doing so they’re going to flood the market with new capacity and risk reversing current positive trends. This is a potential mega-problem in waiting.”

Data from Container Trade Statistics has showed a steady improvement in Asia-Europe volume, with the first half of 2017 registering growth of 5.23 percent year-over-year. However, even if demand growth of 5 percent is recorded in the fourth quarter, SeaIntel said that would still leave 7 percent excess capacity and necessitate carriers blanking 28,300 TEU per week to match demand and supply. This would translate into 2.2 services withdrawn each week.

However, Rod Riseborough, CEO of Container Trades Statistics, said with the continuing high growth in volumes, the anticipated increase in capacity may not have the detrimental effect that was being forecast.

“Overall, we are seeing well above average volume growth on both trades (Asia-Europe and trans-Pacific), and there is every expectation that this situation will continue in the rest of 2017 and possibly early 2018,” he said.

According to IHS Markit data, the bulk of vessel deliveries for the container shipping industry will be delivered before the end of 2019 and are heavily skewed at the top end of the range with 18,000-plus-TEU ships, which have limited deployment options outside Asia-Europe, accounting for around 40 percent of the orders. Seventeen vessels amounting to 350,000 TEU are set to be delivered this year, and another 22 megaships are scheduled for delivery in 2018.

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