Overcapacity drags down Asia-Middle East, South Asia rates

Overcapacity drags down Asia-Middle East, South Asia rates

HONG KONG — Spot rates on the Asia to the Middle East and South Asia are being undermined as carriers on the trades struggle to maintain load factors to support freight rate increases, according to Drewry Container Insight.  

The London-based analyst said in a research report that Shanghai to Jebel Ali spot rates fell by $230 in January to $1,460 per 40-foot container. Spot rates from Shanghai to Nhava Sheva have been on downwards path since July and fell to a 10-month low of $1,210 per 40ft in January.

“Despite the strong volume growth, spot rates in this trade will remain volatile and subdued until carriers upgrade its status and stop treating it as second-fiddle when making capacity decisions,” the report said.

With much of the focus being on the three so-called “core” East-West trades, Drewry said developments to South Asia and the Middle East were often overlooked. “This is a mistake as westbound container volume from Asia to each of the two regions is now on a par with head haul trans-Atlantic traffic.”

After a lean 2013 when volumes grew by around 1 percent, box traffic from Asia to the Middle East did far better in 2014. Container Trade Statistics (CTS) reports that westbound volumes increased by 6.9 percent last year to reach 3.27 million TEU. Much of this growth was supported by infrastructure projects through the region, according to Drewry.

The analyst said growth in the container trade to South Asia was even stronger, rising by 10.5 percent to 2.92 million TEU.

“India, unlike other emerging economies such as Brazil and Russia, is clearly still providing a return on investment in the container market. The fall in energy prices — India imports around 80 percent of its oil — should allow that growth to continue in 2015. As should a firmer rupee and rapidly declining inflation,” Drewry said.

According to the analyst, the overcrowded trades to the Middle East and South Asia not only have to contend with the upgrading of dedicated services with larger ships, but it is also beholden to changes made to mainline Asia-Europe and trans-Pacific loops with wayport calls to ports such as Colombo or Jebel Ali.

The formation of the 2M and O3 partnerships did not directly affect the Middle East and South Asia trades, apart from a reshuffle of wayport calls to the regions, but Drewry said it has spurred MSC to start new dedicated loop in March using ships of 8,000 TEUs. The New Falcon service will use eight ships calling Nansha, Xingang, Ningbo, Shanghai, Fuzhou, Chiwan, Tanjung Pelepas, Singapore, Colombo, Dubai, Dammam, Jubail, Dubai, Nhava Sheva, Singapore, and Nansha.

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