Box carriers reinstate some Asia-US capacity

6/30/2020

Global container lines are reinstating some of the capacity they cancelled in the last few months on the Asia-North America West Coast trade lane, although it’s not a sign of a post-pandemic rebound in the US, according to container shipping analyst Sea-Intelligence.

In its latest weekly Sunday Spotlight report, Sea-Intelligence highlighted that the development in blank sailings on the Asia-North America West Coast trade lane “differs from the other major East-West trades”.

It said the “data shows that most main trades continue to see an increase in the amount of blank sailings as carriers clearly expect a depressed demand situation to continue into Q3 (third quarter) 2020. However, the Transpacific trade to North America West Coast is currently seen to diverge from the development of the other key deep-sea trades. Where other trades maintain the levels of blank sailings, or increase them, the North America West Coast trade is currently seeing a significant reduction in blank sailings.” 

Sea-Intelligence CEO Alan Murphy questions: “Is this the harbinger of a post-pandemic rebound in the US? The data for now does not seem to support such a hypothesis. If this was the case, we should expect a similar development in the Transpacific trade to North America East Coast as well as the North and South Atlantic trades – but that is not what the data shows.

“The re-instatement of sailings only materially apply to the West Coast trade, not the other trades. Additionally, the amount of blank sailing to the West Coast is set to increase again as we get into Q3.” 

Murphy added: “The data, therefore, supports the notion that the carriers had simply removed too much capacity from the West Coast trade for a period, and now need to ensure sufficient capacity is available address the resultant roll-pool of cargo. Once this is addressed, the blank sailings level is set to rise again.”

Sea-Intelligence calculates that the blank sailings this year by lines operating on the major East-West trades account for just over 4m teu on the transpacific and Asia-Europe trades combined. This translates into a combined week 5-35 trade-wise blank sailings breakdown of 1.52m teu or 15.6% of the total 31-week trade lane capacity on Asia-North America west coast, 685,000 teu or 12.8% on Asia-North America east coast, 2.06m teu or 21.8% on Asia-North Europe, and 992,000 teu or 21.5% on Asia-Mediterranean.

Looking forward to weeks 24-35, carriers are expected to take out around 7% of the total capacity on both the Asia-North America west coast and Asia-North America east coast trade lanes, whereas 13% is slated for Asia-North Europe and 17% for Asia-Mediterranean, Sea-Intelligence estimates. In teu terms, roughly 420,000 teu will be blanked on the transpacific, and 790,000 teu on Asia-Europe.

Carrier profitability revised

Examining how this capacity management is translating for container line profitability, Sea-Intelligence notes that the model for carrier profitability in 2020 has needed to be revised in recent weeks, noting: “When the first estimate of carrier profitability was made in April, two key scenarios were made. Both assumed a 10% loss of volume. One then assumed stable freight rates which would lead the carriers to a loss of US$800 million. The other assumed a ‘normal’ freight rate war in a weak environment leading to a $23 billion loss.

“The stark difference led us to predict that carriers would strive hard to maintain freight rates through capacity management. But the carriers have shown that they did not maintain stable freight rates – they have actually increased them quite substantially.

“With this taken into account, we now have two new scenarios. If the carriers maintain the current rate levels, they stand to have a profit in excess of US$9 billion in 2020. If they start a freight rate war in 2H 2020, they stand to lose $7 billion.

“Once again, it is likely that it is the positive scenario which will unfold.”