Box lines accelerate service cancellations

4/12/2020

Container lines have announced a series of further major service cancellations to reflect falling demand, with the Asia-Europe trade set to see the largest capacity withdrawal, entering a four-week period with around one third of the capacity removed from the market, according to industry analyst Sea-Intelligence.

Sea-Intelligence’s latest weekly analytical report, the Sunday Spotlight, highlighted carriers’ potential losses in 2020 and the development in blank sailings, noting: “Within the past week, the number of blank deep-sea sailings has increased from 45 to 212. Whilst there are now multiple services with cancellations ranging through to the end of June, the majority of blank sailings are clustered within the coming 5-6 weeks. 

Alan Murphy, CEO of Sea-Intelligence, highlighted that “the largest capacity withdrawal is seen in the Asia-Europe trade where we will now enter a 4-week period with 29-34% of the capacity having been removed from the market”, adding: “The financial impact on the carriers could also be profound, although the magnitude to a large degree depends on the carriers’ pricing discipline going forward.”

In the “most benign scenario”, he said carriers would “experience a 10% volume decline in 2020 due to the pandemic but manage to prevent any material decline in freight rates. In this case their profits will decline by 6 Billion USD compared to 2019 and cause all main carriers combined to lose 0.8 Billion USD in 2020.

“In the worst case, the carriers will see freight rates decline to the same degree they experienced during the financial crisis in 2009. In this case the main carriers will collectively lose a staggering 23 Billion USD in 2020.”

Murphy added: “It is therefore clear that the primary purpose of the capacity reductions should be seen as an effort to prevent a catastrophic drop in rate levels. The cost savings are also important, as they too are measured in the billions, but pale in comparison to the impact declining rate levels will have.

“Hence the development in freight rates will be important in the coming weeks, as that will determine the degree to which we will see even more aggressive capacity reductions.”