Asia-Europe box ship utilisation fell to 75% in Q4

2/17/2018

The formation of alliances has reduced container lines’ willingness to cut capacity in order to maintain freight rate levels, rather than improved the ability of carriers to effectively manage supply and demand, according to the latest analysis by SeaIntel.

The analyst said that in the fourth quarter of last year, excess capacity − the difference between the nominal TEU offered by lines and the volume of containers moved − reached 1.1 million TEU on the transpacific trade and 1.3 million TEU on Asia-Europe. As a result, vessel utilisation was down, year on year, on both trades in the quarter, while rate levels were at or near the lowest fourth quarter levels in the 2012 to 2017 period.

“Throughout the second half of 2017, we have been raising concerns over the lack of capacity reductions on the transpacific and Asia-Europe trades, and the detrimental effect it was going to have on the freight rates at the back end of last year,” said SeaIntel CEO Alan Murphy. “Looking at the demand and freight rate data for 2017 Q4, we can see that those concerns were fully justified.

“Since the launch of the ‘new’ alliances in April 2017, the carriers have been reluctant to blank capacity at the same level as in previous years, which has resulted in a weak freight rate environment, despite healthy demand growth.”

SeaIntel said nominal vessel utilisation on the transpacific was 80.9% in Q4 2017, significantly below the 87.7% recorded in Q4 2016. Monthly utilisation dropped steadily from 88.4% in August 2017 to 75.9% in November 2017, rebounding to 81.9% in December.

“As a consequence, SCFI spot rates on Asia to North America West Coast declined from $1,426/FEU in August to $1,240/FEU in December,” said the analyst.

Q4 2017 demand on Asia-Europe dropped by 10.5%, quarter on quarter, while capacity was only reduced by 4.8%, resulting in excess capacity of 1.2 million TEU, with utilisation dropping each quarter throughout 2017, reaching just 74.7% in Q4 2017, the second-lowest Q4 since 2012. 

“Monthly utilisation dropped steadily from 83.3% in July 2017 to just 68.1% in October 2017, with SCFI spot rates to North Europe dropping from $927/TEU to $658 in October,” said SeaIntel. “Nominal utilisation then improved back to 81.7% in December, with spot rates to North Europe rebounding a little to $786/TEU in December 2017.”

The analysis of capacity and rates by SeaIntel supports the view, as expressed to Lloyd’s Loading List by Drewry, that consolidation of the liner industry via M&A activity and the formation of alliances is currently capping freight rate rises rather than supporting pricing because lines are putting the maintenance of market share ahead of short-term profits.

Murphy said that with more capacity due to be added to mainline trades in the coming months, the current strategy of lines could negatively impact their transpacific trade contact negotiations with shippers.

“With considerable amounts of new capacity coming on stream in 2018, carriers will either have to start blanking capacity − as in the past years − or risk the current freight rate malaise extends into the upcoming contracting season,” he said.