Looming sea freight overcapacity ‘set to affect rates’

10/23/2017

Lines are failing to remove enough slot capacity on key trades now the Q3 peak season surge in demand is fading, according to one analyst.

SeaIntel said the traditional Q4 culling of deployed capacity relative to the peak season had not so far happened. “2017-Q4 is currently slated for massive overcapacity,” it concluded, adding that the amount of capacity that would need to be removed varied hugely by trade based on current Q4 schedules.

One upshot could be further declines in rates unless lines begin to blank more services. Drewry’s World Container Index fell 1.9% last week and was only up 3% against the same period of 2016. Indeed, Drewry’s composite index has been heading south since August, losing $299 per feu in two months to reach $1,292 last week.

According to SeaIntel, if liner strategy over the past five years is used as a guide, operators will need to blank 25 sailings on the Asia-Europe trade and blank a huge 67 average-sized sailings on the Transpacific to bring any semblance of balance to the market.

“Over the 2012-2016 period, the fourth quarter deployed capacity on the Asia-North Europe trade lane has on average contracted by -6.6% relative to the third quarter, but 2017 Q4 is currently scheduled to shrink by just -0.8% relative to 2017-Q3,” said SeaIntel.

“If the same seasonality is assumed, a total of 193,000 TEU would have to be blanked over the entire Q4 period, equal to the blanking of 13.5 average sailings, or roughly one sailing per week.”

Deployed capacity on Asia-US West Coast services over 2012-2016 has seen Q4 on average contract by -4.5% compared to Q3. At present, this would leave an excess of 184,000 TEU of capacity currently scheduled for 2017 Q4 - equal to the blanking of 25.1 average-sized sailings, or close to two sailings per week.

“On Asia-US East Coast, deployed capacity is currently scheduled to grow by 4.1% over 2017 Q3, which would yield a year-on-year growth of a staggering 21.9%,” said SeaIntel.

“This would mean an excess capacity of 247,000 TEU if the 2012-2016 seasonality is assumed, which would require the blanking of a staggering 32.0 average-sized sailings, or almost 2.5 sailings per week.”