Forwarders expect ‘moderate’ East-West ocean freight price rises

7/16/2017

After steady containerised volume growth over the first six months of 2017, traffic and freight rates on East-West trades are expected to surge as the ocean shipping peak season builds steam in the weeks ahead, according to leading freight forwarding executives.

Robert Reiter, Asia Pacific regional head of ocean freight at Panalpina, told Lloyd’s Loading List he expects final throughput volumes on head-haul liner trades out of Asia to reveal healthy year-on-year growth. And he forecast demand would remain strong through most of Q3 ahead of China’s golden week national holiday which starts on October 2 and traditionally prompts a scramble to load cargo ahead of factory closures.

“We expect the Far East westbound and eastbound trades to grow by an estimated 6-7% in the first half of 2017,” he told Lloyd’s Loading List. “We also expect the usual increased demand in the traditional peak period in August and another spike of volumes prior to Golden Week.”

As a result, he said Panalpina was anticipating “moderate” ocean freight rate increases over the next three months. “We expect ad hoc and long-term rates to rise on the Far East westbound trade and in selected intra-Asia corridors,” he added.

A spokesman for the Hong Kong Association of Freight Forwarding and Logistics (Haffa) also predicted rate increases in the coming months but forecast these would be “moderate”, and this year’s Asia-Europe peak season would be shorter than normal with demand on the trade “lower” year-on-year than in 2016.

On the transpacific head-haul trade into North America from Asia, Haffa predicted an average peak season running September to November.

Paul Tsui, managing director of Hong Kong-based forwarding and logistics operator Janel Group, said current demand on the transpacific and Europe trades out of Asia was steady, with no space issues. But he predicted space on transpacific services “may be getting tight starting August and through until October for the normal peak period”.

In terms of back-haul trades, Reiter said general GDP growth in Asia-Pacific, across verticals, was a driver of demand for imports to Asia and the surge in rates on Europe to Asia trades earlier this year was a combination of demand increases and liner alliance restructuring.

“We saw significant demand growth in Q1 on the Far East Eastbound trade,” he said. “As per our records, the Europe-Asia volumes grew around 8% until April this year.

“The increased volumes came with an equipment imbalance that was created during the Chinese New Year period, draft issues at Hamburg port, and targeted capacity reductions by the carriers.”

Although Drewry recently noted the number of void sailings had vastly increased this year, Reiter said that after some delays linked to alliance restructuring, services out of load ports in Asia were now back to normal. “Besides delays caused by port congestion in some of the Chinese ports, we are not experiencing major service issues,” he added.

However, both Haffa and Tsui noted ongoing disruption at Shanghai.

“The main issue of port congestion is due to the restructuring of alliances and they have switched from one terminal to the other and made the operation a bit complicated,” added Tsui. “Also, efforts to improve inner river operations left Shanghai in a very difficult situation, but it will gradually improve over the next 1-2 months.”

As reported in Lloyd’s Loading List, Drewry’s World Container Index, a composite of container freight rates on eight major routes to and from the US, Europe and Asia, was up 12.2% last week to US$1,550 per 40ft container. Spot rates for a 40ft box on the benchmark Shanghai-Rotterdam route “shot up” last week by 17% or $284 to $1,936 – “as a result of peak season demand and the 1 July GRIs” (general rate increases) – although that is 4% below the same period last year.

Drewry predicts that those Asia-Europe prices will hold firm this week, and with demand continuing to exceed expectations, despite a slight slowing of growth in the second quarter, with careful capacity management, freight rates continue their upwards trajectory.

However, container shipping market intelligence platform Xeneta believes the market is now “trending downwards”, but needed to be monitored carefully – not least to see if July GRIs by lines stick in the lead up to the peak shipping season.