Europe-Asia eastbound ocean prices approach westbound levels

4/17/2017

Europe-Asia eastbound ocean freight spot rates recorded further dramatic increases last week, rising to levels close to those of the headhaul westbound leg, as continuing strong demand combined with capacity adjustments by lines prolonged the period of tight supply and backlogs for ex-Europe containerised cargo to Asia.

Figures from the World Container Index, assessed by Drewry, late last week show rates from Rotterdam to Shanghai leaped almost $600 (65%), to $1,557 per loaded 40 ft unit, just short of the $1,676 per FEU rate for the reverse headhaul journey.

After declining the previous week, rates on the Asia-Europe headhaul route strengthened last week on the back of GRIs, while rates from Asia to the US East Coast declined further.

“Meanwhile, tight space on vessels leaving Europe to Asia and rate hikes from ocean carriers at short notice continue to have a negative impact on spot shippers,” Drewry said.

Lloyd’s Loading List has reported since early March that European exporters and forwarders trying to ship export containers from Europe to Asia and the Middle East have been facing unusually tight capacity for the time of year for several weeks, leading to rising rates, booking restrictions, and backlogs.

Lloyd’s Loading List reported on 13 March that spot container freight rates from North Europe to China had risen by 45% the previous week to a four-year high of more than US$1,000 per FEU due to unexpectedly strong eastbound volumes, especially to China, plus service cuts post-Chinese New Year.

Shipper and forwarder representatives have blamed carriers for cutting too much capacity from their schedules after Chinese New Year, with some also blaming the start of the new container shipping alliances for the capacity problems. But container lines claim that unusually high demand is the principal reason behind the current capacity shortage on the backhaul Europe-Asia trade, and not confusion surrounding the launch of the two new alliances.

Drewry noted that the latest numbers from Container Trades Statistics reveals that Europe-Asia eastbound volumes after two months of 2017 were up by 9% on the same period last year. The bulk of the growth was to Greater China, which saw volumes increase by 14% to 501,000 teu.

Shipments to North Asia rose by 1.5% to 160,000 teu, while demand from Southeast Asia increased by 4% to 158,000 teu. In contrast, westbound volumes were up by a meagre 0.4% after two months, Drewry said.

Analysing the factors, Drewry said noted that eastbound ships “are usually only 60% full at best, so in normal circumstances shippers should never have to worry about space shortages. However, a perfect storm of events has conspired to make their lives very difficult right now.

“These factors include stronger than expected demand in Asia for European products, most significantly of heavy cargoes that restrict a ship’s carrying capacity, and what now seems like a poorly managed integration of new alliance networks.”

Drewry concluded that probably the biggest single factor was the migration towards the new alliance services as ships moved off their normal schedule in readiness for the 1 April start. “Some disruption was always likely from the overnight changes affecting nearly 100 weekly services, but with no like-for-like precedent it was impossible to know just how bad things would become,” the analyst noted.

“In February we raised a red flag that the slow drip feed of information was causing serious planning headaches and unfortunately it seems that eastbound shippers are the unfortunate parties caught up in the transitional mess.” Drewry questioned: “With capacity decisions dictated by the westbound market how many carriers even considered the unintended consequence to European exporters?”

The World Container Index assessed by Drewry is a composite of container freight rates on eight major routes to and from the US, Europe and Asia. The index overall was up 11.6% just last week alone to US$1523.86/40ft container as of Thursday 6 April and it is up by 75% from the same period of 2016.

The average composite index of the World Container Index assessed by Drewry for the year to date is US$ 1,624/40ft container, $104 lower than the 5-year average of $1,728/40ft container.