Asia-Europe

Although the incoming capacity will outstrip demand on the major trades over the next two years, the capacity overhang that has been touted in many corners of the shipping sector is being overstated, says an industry analyst.

The westbound trades out of Asia are heading into tender season with carriers attempting to lift rate levels before locking in long-term contracts being eroded by surplus capacity.

On its own, the growth in container volumes on Asia to Europe trade lanes in the third quarter was impressive, but it compares with the steep slowdown in imports last year by overstocked retailers.

Carriers are reporting some successes in convincing shippers to use their emissions-reduction services, but acceptance of premium — and costly — green products remains a hard sell in a market where rate levels are at record lows.

Yang Ming said the imbalance between vessel supply and cargo demand, high inflation and geopolitical risks will be among the factors pressuring the ocean market into 2024.

The carrier has followed its peers with a sharp decline in earnings, and although still highly profitable, its CEO warned that rates on the east-west trade lanes are at unsustainable levels.

With weak demand for European imports in Asia and ample vessel capacity, spot rate levels on the backhaul trade are in freefall.

Carriers are already beginning to adjust schedules ahead of Europe’s new shipping carbon tax, something forwarders say could reduce direct port connections and boost transshipment activity.

Still, sharply rising vessel operating costs could limit any exploitation of the supply-demand imbalance with carriers unwilling to accept loss-making contracts.

Spot rates are being dragged down by forwarders speculating on an extended period of weak rates on the Asia to Europe trade as capacity is expected to outstrip demand through 2024.

Existing overcapacity in the container shipping market has provided the resilience required to handle a potential prolonged blockage of the Suez Canal, says analyst Lars Jensen, who wonders if stakeholders are willing to pay higher freight rates to maintain that safety net.

The normalization of container shipping markets is being accelerated by a surplus of capacity, with predictable results on the profitability of ocean carriers.

Both Hongkong International Terminals and Modern Terminals confirmed cargo handling operations at their facilities at Hong Kong’s Kwai Chung container port were halted for about 33 hours, gradually resuming late Monday afternoon.

The Cosco subsidiary reported mostly positive volume metrics for both the third quarter and nine months through September, although revenues were down sharply.

To comply with the European emissions trading system, ocean carriers will essentially need to become experts in carbon credit trading, on top of monitoring, verifying and reporting CO2 emissions.

A significant misalignment in ETS surcharges among ocean carriers can be expected if the per-FEU levies already announced by Maersk and Hapag-Lloyd are any indication, according to Sea-Intelligence Maritime Analysis.

Cargo owners want complete transparency from carriers in their “emission surcharges” that will be levied on customers from the first quarter of 2024 and are looking at how the surcharges can be handled in long-term rate agreements.

While the costs of meeting shipping’s net-zero 2050 target are expected to run into the trillions, Europe’s emissions trading system presents a more immediate decarbonization cost that awaits European cargo owners in the new year.

The phased implementation of Europe’s emissions trading system on the shipping industry beginning next year will generate significant costs for carriers that will be passed on to customers in the form of new charges.

Ocean carriers on the busy trade lane plan to slash deployed capacity to match falling demand levels that typically follow China’s Golden Week holiday at the start of October.

Facing an operating loss of up to $500 million for 2023, Zim hopes the sharing arrangement with its larger competitor will help drive efficiencies “amidst continued near-term headwinds.”

But in its interim earnings announcement, Cosco Shipping Holdings also maintained a cautious outlook due to challenges it cited, including the global economy, inflationary pressures in Europe and America, and the delivery of new vessels.

Weak European demand for containerized trade through the first half is hurting port throughput at the region’s top three gateways, but signs are emerging of recovering volume on certain routes.

Additional upward pressure might soon be brought to bear on spot rates, with forwarders expecting carriers to ramp up blank sailings through the fourth quarter to mitigate a significant injection of new capacity.

The Cosco Shipping subsidiary noted that significant uncertainties over economic growth prospects and the huge injection of capacity into major trade lanes made forecasting difficult.

Getting shippers to commit to premium-priced, low-emissions shipping services is a hard sell for ocean carriers and forwarders as cargo owners enjoy rates that are now mostly below pre-pandemic levels after two years of record highs.

Carriers will have to withdraw large amounts of capacity to prevent a freefall in rate levels that are expected to be undermined by rising capacity and subdued demand, according to forwarders.

The first-half results of Hapag-Lloyd and HMM mirror those reported by their peers, with earnings severely challenged by the rapidly normalizing market.

Despite unfavorable comparisons with last year, volume between Asia and the Mediterranean has surpassed that recorded in pre-pandemic 2019.

The latest China–India service follows the announcement of another new string from CULines and capacity increases from other carriers, including Pacific International Lines, Evergreen Marine and Regional Container Lines.

While the magnitude of peak season in any given year may have macroeconomic significance in shedding light on the strength of consumer spending and the economy overall, it is only one factor driving the market conditions that affect the physical movement of goods, writes Peter Tirschwell.

Inclusion in the European Union’s emissions trading system will affect not only the cost of shipping to and from the EU, but will likely put upward pressure on pricing for cargo that doesn’t touch the EU at all, writes analyst Lars Jensen.

The financial results of the Singapore-based carrier reflect a return to a more normal container shipping market, albeit one characterized by weak demand from inflation-hit destination markets.

The new price levels signal the intent of carriers to drive up freight-all-kinds rates in a move to capitalize on any increased buying should a peak season emerge.

With European parliamentary elections set for early June 2024, road and rail lobby groups have emphasized the urgency of getting the latest freight transport measures adopted.

Ocean carriers are showing a lack of urgency to blank sailings even as China’s exports weaken and new vessels continue to come online.

The fall hid some upbeat trends, with the number of refrigerated containers rising more than 10% in the first half and the rate of decline in overall volumes easing in the second quarter.

The Singapore-based carrier’s multi-billion-dollar investment plan into terminals, new ships and decarbonization is meant to secure the right assets in the right areas to keep it in the black.

The extent to which the rapidly cooling container shipping market is hurting China’s main carriers is likely to be repeated across the industry as reporting season approaches.

The carrier is attempting to stem the spot rate slide in a weak demand-high-capacity environment that has seen freight prices fall more than 80% from the record highs of early last year.