The peak season carrier strategy of rate increases and blank sailings on the Asia-North Europe trade is beginning to lose steam as slowing demand pulls down rate levels for the second week running.
Spot rates from Shanghai to Northern Europe fell 4.5 percent this week to $757 per TEU, according to the Shanghai Containerized Freight Index (SCFI), published under the JOC.com Shipping & Logistics Pricing Hub. The rate is down 20 percent compared with Week 35 last year.
Carriers have already indicated new freight all kinds (FAK) rate levels for Sept. 1 ranging from $840 to $1,100 per TEU, and CMA CGM has also announced a Sept. 16 rate increase to $950 per TEU.
But with widespread factory closures during China’s Golden Week in the first week of October due to further limit volume out of Asia, shippers can expect the increases to be accompanied by a new round of sailing cancelations as carriers try to match capacity with the fall in demand up to and beyond the holiday.
A total of 150,000 TEU was withdrawn from the market during the peak season of July and early August, lifting rates above the $800 per TEU mark for the first time since February, and that strategy will soon be repeated, said Alan Murphy, CEO of Sea-Intelligence Maritime Consulting.
He warned that if capacity cuts are to match 2018 levels ahead of the traditional Golden Week slow season, shippers can expect “significant” blanked sailings to be announced over the next two weeks. Those announcements have already started, with Cosco Shipping subsidiary OOCL on Aug. 30 telling customers that it will be blanking six Asia-North Europe sailings in October and November, and eight westbound Asia-Mediterranean sailings over October-December.
Writing in his Sunday Spotlight weekly newsletter, Murphy said 30,500 TEU of capacity was to be blanked on Asia-North Europe, considerably higher than what has normally been canceled six weeks before Golden Week.
“If the average blanked capacity of 2018 is to be matched, an additional 92,000 TEU needs to be blanked, while an additional 105,000 TEU needs to be blanked in line with the average 2014-2018 percentage of blanked capacity,” he noted. “If the trend of previous years holds, we should see a significant number of announcements over the next two weeks.”
Xeneta CEO Patrik Berglund said carriers, despite their best efforts, were struggling to keep rates up. He said on the Asia-North Europe trade, higher rates at the start of August had turned into reductions from Sept. 1, despite carriers blanking sailings.
According to Peter Sand, chief shipping analyst for BIMCO, blank sailings were used by most carriers in the market to stem the pressure from the introduction of mega-ships on the trade. He said this year, carriers have deployed 10 units of 20,000-plus TEU capacity and another seven vessels of between 15,000 and 20,000 TEU.
“Volume growth [on Asia-Europe] has been very strong, but SCFI spot rates from Shanghai to Europe have been loss-making most of the year, especially since March,” Sand said.
But there is another factor in play that will likely encourage carriers to cancel sailings. Implementation of the International Maritime Organization’s (IMO's) global low-sulfur fuel requirement will allow carriers to blank sailings while also preparing vessels for compliance.
Vessels that are retrofitted with scrubbers, which would achieve the sulfur reduction while still burning high-sulfur fuel, would be removed from service for three weeks. IHS Markit expects about 6 percent of container ships globally to have exhaust scrubbers installed to meet the IMO mandate, but even ships planning to burn low-sulfur fuel will need to be dry-docked for at least a week to have the high-sulfur residue flushed from their tanks.