Possible disruption again on Europe-Asia in Q1

1/11/2018

The perfect storm that hit the Europe-Asia backhaul container trade in the first quarter of 2017 is unlikely to be repeated this year, although shippers should still prepare for challenges as lines make further changes to networks, according to liner and 3PL executives.

Shippers were caught out in early 2017 due to a number of factors. Sweeping changes to the liner alliance system involved extensive network and service restructuring in Q1; an early Chinese New Year saw lines blank multiple sailings, which reduced capacity out of Europe from February; and strong demand for waste paper and scrap in China saw European exports spike.

The shortage of capacity allied to soaring demand saw freight rates soar. Shippers also suffered cargo rollovers and delays from February until late April after, which the new alliance networks began to settle down. 

However, this year the outlook is different. Although alliance networks will be further rejigged, the changes will be less fundamental than a year ago. And, as reported in Lloyd’s Loading Listnew Chinese restrictions on imported waste introduced at the start of the year are set to dampen demand for backhaul east-west capacity.

Dominique von Orelli, global head of ocean freight at DHL Global Forwarding, told Lloyd’s Loading List the events of early 2017 were “unique and unprecedented” but admitted there is “no guarantee that this won’t happen again” while the ocean carrier sector is still in a state of flux.

“Early bookings and the likes will not help if the carriers do not manage their capacity properly,” he added. “What is crucial for all trades is predictability, meaning that the shippers have to deliver the volumes they agreed to with the carrier and must accept sustainable rate levels during the contractual period.

“Low rates and transactional behavior will not assure space in times of capacity shortage. Carriers will always prioritize based on past performance and rate levels.”

Johan Sigsgaard, head of Europe services at Maersk Line, also admitted shippers could still face challenges in early 2018 on Europe to Asia lanes, depending on the level of backhaul demand growth.

“During the past years, eastbound volumes have outgrown westbound volumes,” he said. “As the eastbound volumes tend to swing a lot during the first quarter of the year, there is a likelihood that we will face challenges also in the first quarter of 2018.

“To prepare for an event like this and make the most out of our capacity, precise forecasting is key for Maersk Line. It enables us to stay close to our customers and keep an ongoing dialogue so we can plan better, ensure we are able to honour our contracts and offer opportunity to get priority for our customers’ cargo if needed.

“We continue to believe that utilization is what will drive the market and that we are moving towards a more balanced utilization on both east and westbound routes.”

Von Orelli also predicted that rates on the Europe-Asia trade would continue to fluctuate this year. “There’s no traditional or typical contracting season in this trade,” he said. “Negotiations take place all year round. The rate levels vary very much depending on validities and the time of negotiations. Also different carriers apply different strategies.

“It is not possible to make a clear statement on rate levels as the market is extremely volatile.”