Drewry: No Improvements to Asia-Med Rates Until June

Even though the container carriers called for a rate increase (USD 800-USD 1,000 per teu) on April 1 in an attempt to get prices back well over the USD 2,000 threshold on the Asia-Mediterranean routes, any increase secured from this may only be cosmetic, and headhaul spot rates will remain fragile until peak season volumes arrive in mid June, according to Drewry.

Headhaul demand growth has waned, slot supply has risen and rates have plummeted, and at first glance, all the indicators in the charts that follow exhibit negative tendencies which might be unnerving for the carriers, Drewry says.

In January, the westbound trade witnessed a 6.8% dip in volumes compared to twelve months earlier.

Ships heading for Europe this year during the lead-up to Chinese New Year were for the most part full and loading data for February, when it becomes available, should show a considerable improvement over last year’s monthly low of 281,000 teu, according to Drewry.

Westbound demand growth in the fourth quarter softened to 2.4% and throughput for the full year – up 5.7% – just failed to cross the 5 million teu barrier. By the end of January, the 12-month rolling growth average had fallen to 4.2%, whereas back in the middle of last year the headhaul trade was racing away at twice that pace. However, the rolling average should now begin to stabilise at slightly above the current reading, Drewry predicts.

The large jump in teu capacity from the start of 2015 was not unexpected and is primarily due to the formation of the new 2M and Ocean Three vessel sharing agreements. Previously, the three main carriers in those alliances – Maersk, MSC and CMA CGM – in their former set-ups provided seven dedicated strings connecting Asia and the Mediterranean; today, that number has increased to nine. After having only recently upgraded its Black Sea service tonnage by replacing 6,500 teu units with newbuildings of 9,300 teu, CMA CGM has now slotted into the ranks three 10,600 teu vessels.

The inauguration of the 2M and Ocean Three services has drawn a response from the CKYHE partners. Their MD1 loop will in future deploy 10,000 teu ships instead of 8,000 teu vessels, and the new end-to-end ADR product – successor to the old UAM pendulum service – will be operated with 8,500 teu vessels instead of the 5,500 teu units that served the UAM. By introducing these changes, the alliance will add 13-14% to its overall capacity on the Asia-Mediterranean route, Drewry reports.

At the start of the second quarter, the increase of supply on the headhaul leg stood at 13% compared to 12 months before, although by the third quarter the year-on-year increase reduces somewhat to more manageable levels. Today, 27 services (of which 15 are end-to-end structured products) offer approximately 475,000 teu per month with ships averaging 9,800 teu. Back in August last year, 24 loops existed providing a monthly supply of 433,000 teu with vessel size at 9,600 teu.

In the run-up to CNY, westbound spot rates rose to USD 2,800 per 40ft but by the start of March – despite several blanked sailings during the latter part of February – ship utilisation levels had sunk to 80-85%, causing a spectacular crash in prices all the way down to USD 1,400 by the close of the first quarter. The rate differential over North Europe trade prices is shrinking and currently represents no more than USD 300, says Drewry.

Backhaul volumes have disappointed as of late with exports out of the Mediterranean in 2014 posting a 1% decline – the first time the eastbound leg has seen a drop since 1998, Drewry reports. Nor has 2015 got off to any better start with the carriers’ preliminary returns for January showing that volumes have fallen year-on-year by 13%, resulting in a ship utilisation factor of only 37%.