Analyst: Asia-Europe capacity set to outstrip demand

Analyst: Asia-Europe capacity set to outstrip demand

Hapag-Lloyd reported global volume growth of 2.4 percent in the first quarter and a nearly 7 percent rise in Asia-Europe volume. Photo credit: Hapag-Lloyd.

A new alliance loop on the Asia-Europe trade, mega-ships deliveries, and slowing economic growth among major European economies may upset a strong start to the year, according to Freightos.

The online rate marketplace said that although China-Europe prices were still slightly up from last year, at $1,444 per FEU on May 8, “with a new Ocean Alliance loop now in operation, more mega-ships coming on-stream, and European economic growth prospects weak at best, supply seems set to soon outstrip demand.”

The Ocean Alliance began its new Asia-Europe Loop 7 service this week with the sailing of the 14,424-TEU Taurus from the port of Hamburg. Loop 7 will be served by 10 Evergreen units of between 13,000 TEU and 14,000 TEU.

In an earnings call with analysts after announcing a $109 million first-quarter net profit, Hapag-Lloyd confirmed that it also expects the global container market to tighten, according to Jefferies.

The investment bank noted that global capacity was expected to increase 3.2 percent this year, with new vessel deliveries of 1 million TEU adding 4.5 percent to capacity, partly offset by an uptick in the scrapping rate from 0.5 percent to 1.4 percent ahead of the International Maritime Organization’s 2020 low-sulfur fuel mandate on Jan. 1, 2020. Scrubber retrofits on 10 of Hapag-Lloyd’s 100 owned vessels are expected to impact capacity by about 1 percent, mainly in the second half, the investment bank reported.

Alphaliner estimates average weekly capacity on Asia-Europe will be 7 percent higher in May and June compared with the same period last year, while demand on the trade was forecast to grow by 2-3 percent.

Hapag-Lloyd reported global volume growth of 2.4 percent in the first quarter and a nearly 7 percent rise in Asia-Europe volume.

A solid Asia-Europe performance — Hapag-Lloyd transported 556,000 TEU for the quarter, an increase of 37,000 TEU over the first three months of 2018 — was in line with the latest data from Container Trades Statistics (CTS). European containerized imports from Asia grew 7 percent over the January-March period, according to CTS data, with a 15 percent year-over-year decline in February wiped out by a nearly 24 percent increase in March.

First-quarter throughput from Europe’s major hubs also reflects rising volume. Rotterdam reported a record quarter in terms of volume, and Antwerp said it had its best ever March throughput.

Cautious optimism

Across its network, Hapag-Lloyd carried 2.9 million TEU in the first three months of 2019, 2.4 percent more than during the same period last year. The carrier also reported freight rates that were 5 percent higher for the quarter, adding more than $250 million to its first quarter revenue of $3.4 billion compared with the first three months of 2018, an increase of 8 percent.

Hapag-Lloyd remains one of the most positive carriers in the market and the first-quarter result has done nothing to temper that optimism. In its earnings release, the carrier pointed to IHS Markit container trade growth expectations that remain broadly healthy. Global container volume is expected to grow by 4 percent in 2019 and by 3.9 percent in 2020.

Other indicators Hapag-Lloyd cited as helping to improve the container shipping market were the historically low orderbook that stands at 11 percent of the current fleet, a decline in the idle fleet, delayed deliveries of new vessels, and a likely increase in scrapping.

Rolf Habben Jansen, CEO of Hapag-Lloyd, said the first quarter was in line with his expectations and had seen the year get off to a good start.

“We are cautiously optimistic about 2019 despite slightly dampened forecasts for global economic growth and higher fuel prices,” he said.

IHS Markit predicts Europe’s economy will expand by about 1.5 percent in 2019, but that is still down from a 1.8 percent growth rate last year. The latest IHS Markit European purchasing manager’s index (PMI) found the automobiles and auto parts sector remained in a downturn through April, as output and new orders fell to a 76-month low. European manufacturing posted the strongest decline in output since November 2012.

How the weakening economic activity will affect volume growth will only be seen when the April data from CTS is released in early June. But so far, any drop in demand during the second quarter is not being reflected in the spot market, which suggests that either volume has continued to grow despite the economic slowdown, or effective capacity management by carriers on the trade is compensating for any declining volume.

The Shanghai Shipping Exchange’s Shanghai Containerized Freight Index (SCFI) was closed in early May for the week-long labor holidays, but the index’s April 26 spot rate of $717 per TEU from Shanghai to North Europe was 12.4 percent higher than during the same week last year, according to analysis of weekly rate movements recorded on the JOC Shipping & Logistics Pricing Hub.

Contact Greg Knowler at and follow him on Twitter: @greg_knowler.