Asia-Europe ocean freight rates fall 9%

11/12/2017

Asia to Europe ocean freight rates fell 9% this week, while transpacific headhaul freight rates also fell and are expected to drop further next week, according to the latest World Container Index figures, assessed by Drewry.

Rate gains during the first week of November – on routes originating from Asia – waned towards the second week, with average prices on the World Container Index between Shanghai and Rotterdam losing $157 (9%) from the previous week to reach $1,559 for a 40ft box. Rates are now also 9% lower than in the same period in 2016.

Rates on the Transpacific route also followed a downward trajectory this week, Drewry noted. The WCI between Shanghai and Los Angeles softened by 5% or $77 from the previous week to $1,557 per feu. Rates on this route are 20% weaker than in the same period in 2016.

Meanwhile, the decline was higher on the Shanghai-New York route, where rates diminished by $290 or 12% from the first week of this month to reach $2,114 per feu.

“As carriers are poised to shelve their 15 November GRIs, rates are expected to head south next week,” Drewry said.

The composite index − of container freight rates on eight major routes to and from the US, Europe and Asia − is down by 9.4% this week and down by 9% from the same period of 2016.

The average composite index of the WCI, assessed by Drewry for year-to-date, is US $1,499/40ft container, which is $111 lower than the five-year average of $1,610/40ft container. It is also 9% lower than a year ago.

As reported in Lloyd’s Loading List, earlier this week, Alphaliner warned that lines will risk freight rate declines through the winter slack season by maintaining service levels at their current level on key trades. The analyst said total capacity on the Asia-North Europe route in the fourth quarter would be up by 11%, year on year, with only a limited number of blanked sailings planned for the winter slack season. 

Over the previous four years, carriers have made sizeable capacity cuts through void sailings or service suspensions, but this year “strong volume growth has given carriers the confidence to retain additional capacity in the trade”, said Alphaliner. “After ten blanked October sailings for the Chinese National Day ‘Golden Week’ holidays, only seven blanked sailings are currently scheduled for the months of November and December.”

It said the limited capacity cuts “should remove any concerns about space shortages, even though demand has picked up very quickly after the October holidays in China. Capacity utilisation has rebounded to 95% in the last week of October, with only a mild fall in that month despite the higher capacity on offer.”

Spot freight rates from the Far East to North Europe had rebounded in the previous two weeks, it noted, as carriers pushed out a fresh round of rate increases after suffering a 33% drop since July this year.

“Whether carriers will be able to retain the firmer rates as the fourth quarter progresses remains uncertain, as their reluctance to withdraw capacity will likely weigh heavily on any efforts to raise rates.”

However, Alphaliner said there would be significant pressure on backhaul eastbound rates, which this year surged to record high levels. “China’s 2018 import ban on certain classes of plastic scraps and wastepaper will affect all voyages with an ETA in China from 31 December,” said the analyst.

“The impact on eastbound volumes will thus be felt as early as November, when ships on the first affected voyages set sail from Europe,” Alphaliner said. “The ban could potentially erase all volume and rate gains obtained on the backhaul route so far this year.”  

As reported yesterday in Lloyd’s Loading List, shipping association Bimco has warned that container shipping lines must carefully manage capacity across their networks if they are to prevent freight rates declining further and limit financial losses over the winter season. Peter Sand, chief shipping analyst at Bimco, questioned why average freight rates had fallen while volumes had grown at healthy levels throughout the Q3 peak season, buoyed by strong US and European import demand for much of the year.

This saw European imported volumes grow by 4% to reach 21.2m TEU over the first eight months of year, according to Container Trade Statistics. Volumes on the Far East to Europe trades expanded 5.4% over the period and accounted for a little more than half of all European TEU imports.

“Head-haul transatlantic from Europe to North America grew as much as 7.9%,” said Sand, who added that global container traffic expanded by 5%, year on year, in the first eight months of 2017.

However, despite strong demand growth, Sand noted that average spot rates for US and Europe-bound routes dropped more than 20% from the end of July through late October.

“With demand growing briskly, why were spot freight rates falling significantly on all those trades?” he said. “Because of the liner companies’ interest in ‘testing’ the strength of the market, they deployed tonnage into the trades until the freight rates dropped,” he noted.