Drewry: Owners Need to Sacrifice Some Capacity

In order to combat the sluggish westbound volumes that have brought about the worst spot market rate collapse that Asia-North Europe trade has experienced, owners will have to sacrifice some capacity, according to shipping consultancy Drewry.

Headhaul volumes since Chinese New Year in February have remained subdued, failing to drive up vessel utilisation factors from the low eighties. First quarter volumes showed a 1% deficit against what was carried a year earlier – facilitated further by the weakening of the euro against the dollar during the last three months of 2014.

April’s lifting data, weighed in with an 8.6% year-on-year decline and within two months the 12-month rolling growth average has halved from 9.4% to 4.7%. Only three countries in North Europe in April imported more goods from Asia than they did a year ago and these were the very marginal markets of Iceland, Ireland and Hungary, Drewry’s data shows.

Among the major economies, Germany and France gave up 7% and even imports into the UK, outside the eurozone, slipped back 2% in the month.

Drewry attributed the havoc on this route to the sharp fall in Russian imports, weakened rouble and the imposition of trade sanctions that have heavily impacted on consumer spending in the country.

In the first three months of this year, Asian goods destined to Russia collapsed by one third to 105,050 teu from 156,500 teu a year before, Drewry said.

Even though Russia is not usually considered one of the key markets in the trade, had the trade not lost the 50,000 teu or so between January and March then overall headhaul results for the first quarter would at least have shown some growth, however meagre, and that may have prevented some of the rate carnage that has taken place.

As a result, carriers have resorted to voided sailing in an effort to reduce costs when demand is slack, and the number of cancellations has been greater in the first five months of this year compared to 2014.

“Ad hoc in nature they remain, but the stratagem is almost becoming a permanent feature of the trade to the extent that the 2M partners are said to be currently considering some revisions to their range of products in order to mitigate as much as possible the inconvenience these impromptu cancellations cause to merchants. It has already prompted Maersk to adopt the term of offering in future a “seasonal network”,” Drewry said.

With the rates falling to USD 500 carriers opted for 1 June general rate increase and are now being asked to sell a 1 July rate hike of anything between USD 1,800 and USD 2,600 per feu, the largest GRI ever seen on this trade.

However, Drewry believes that for any GRI to be successful there is a need to fill the ships, which is only possible by dealing with the oversupply of capacity through certain sacrifices.