Ocean carriers’ tactic of shifting surplus capacity from east-west trades to north-south routes is nearing “saturation point,” according to Drewry Maritime Research.
The “endless” cascading of tonnage from the main haul trades to regional routes is now “seriously haemorrhaging” freight rates in north-south services, and the rate of decline in the second quarter suggests carriers are running out of options to soak up surplus capacity, the London-based consulting firm said.
All-in prices from Asia to Australia, West Africa, South Africa, India and both the east and west coasts of South America based on forwarder buy rates for spot cargo declined significantly during the second quarter. Rates from Asia to India and the west coast of South America rose in July, but Drewry said it “remains to be seen if the increases are sustainable, as there have been many false dawns in other trade lanes.”
The average all-in spot rate from Shanghai to Santos, Brazil, in July was down 51 percent from January, and was 19 percent and 32 percent lower on services to Durban, South Africa, and Melbourne, Australia, respectively.
“This adversarial situation helps to explain why ocean carriers appear to have returned to war with each other over market shares between Asia and Europe since August,” Drewry noted.
The “apparent” benefit of cascading is that average vessel utilization from Asia to the west coast of North America and Europe has usually remained above 85 percent since the second quarter, thus helping to support freight rates.
“It’s been a yo-yo ride nevertheless, but freight rates are still a lot higher than they were at the beginning of the year,” Drewry explained.
Fourteen new vessels averaging 12,713 20-foot-equivalent units were delivered into existing Asia-to-North Europe schedules in the second quarter, but the overall average capacity of all ships on the route increased by just 1.7 percent from the beginning of the year to 10,456 TEUs, as carriers cascaded surplus vessels to other routes.
Drewry said further restructuring on north-south routes via alliances and consortia appears inevitable, particularly as world fleet growth of just over 7 percent in 2014 is again expected to significantly exceed cargo growth. Source: The Journal of Commerce