Strong peak brings Asia-North Europe towards 10m teu milestone

10/12/2017

Following a strong peak season, the westbound Asia to North Europe trade is on course to break the 10 million teu milestone in 2017, according to Drewry’s latest Container Insight Weekly analysis.

Following a revision by CTS, headhaul Asia to North Europe shipments increased by 5.2% after eight months to reach 6.8 million teu, it said, adding that growth had been “relatively consistent through the year, with year-on-year comparisons residing in a fairly narrow band of between 3-8% since May. Were this pattern to continue for the remainder of the year the trade would surpass the 10 million teu threshold for the first time ever come end December,” Drewry said.

“By all accounts it was a strong peak season this year, but the spike or seasonality was slightly less pronounced, and it would appear it started earlier. Several factors account for this advancement, but two key ingredients are the general rise of online shopping and the greater adoption in Europe of the American retail marketing ‘Black Friday’ discounting event on the last Friday of November that have both served to dilute some of the traditional surge to meet the Christmas shopping season.”

As a result, Drewry believes that trade growth might taper off after the current ‘Chinese Golden Week’ holidays, when factories close in the first week in October, and that end-year growth will slip from its current rate closer to 4%. “This view is given some credence by the complete lack of success carriers had in raising rates at the start of September,” Drewry noted.

“Looking further ahead we believe that demand growth will settle at about 3% for 2018 as the restocking and recovery plays in locations such as Russia seen this year will become less influential on growth trends.”

Strong demand and a stable market meant that carriers this year were able to avoid the trend for blank sailings during this year’s peak season. “This is in contrast to three previous years when shipping lines resorted to miss sailings as a measure to manage excessive capacity,” Drewry noted.

Indeed, CMA CGM launched a temporary service SEANE connecting Southeast Asia to North Europe in July to meet seasonal demand. “Due to the introduction of this service and upgrading of vessels in a few other loops, headhaul net capacity will increase by a projected 12% for November,” Drewry highlighted.

However, to cater for the closure of many Chinese factories in the Golden Week holidays, carriers have declared a number of voids from the end of September and early October, which will strip about 30,000 teu in monthly capacity from the trade, or roughly 3% of the total that existed in August, Drewry observed.

“By the start of 2018 we anticipate that effective westbound capacity will remain significantly inflated compared to the same point a year ago, at as much as 20% higher year-on-year,” Drewry added. This assumes that CMA CGM will suspend its seasonal SEANE loop.

“More generally, with a massive influx of ULCVs scheduled for delivery in 2018 and 2019, carriers might have to rationalise services again and cascade a number of existing 14,000 teu units to smaller routes to prop up ship utilisation.”

Spot rates trended down slightly over the past 12 months, but were still profitable and with much of the historical volatility absent during the summer months, Drewry said, adding: “However, rates have been on a more prolonged downturn since September even though utilisation was unlikely to have decreased too dramatically from the mid-90% average seen in the previous four months.

“Despite the most recent softness of the market, we believe that rates will once again trend upwards in 2018, on the working assumption that carriers, working in a smaller competitive pool, will continue to display the same capacity management skills that have served them well this year to help to offset the newbuild deliveries,” the analyst said.

“Demand and freight rates will undertake a seasonal drop as the year closes out, but the longer-term outlook for this trade remains positive.”