Container spot rates are falling at a quickening pace, pointing to a market downturn, Lars Jensen, CEO of Vespucci Maritime noted. “This clearly signals a weakness in the market, especially as we ought to be in the midst of the peak season prior to the Chinese Golden Week holiday in a month’s time,” he said.
Jensen was referring to the rapid reversal in price direction on the Asia to U.S. West Coast and Asia-North Europe tradelanes, which saw their components in Drewry’s WCI index shed another 6% and 5%, respectively this week (see Figure 1). Prior to the current declines, U.S. West Coast rates had only fallen by 10% over five weeks and North European spots had taken eight weeks to lose 10% in value. The WCI U.S. West Coast rate is now -46% lower than a year ago, while the North Europe reading is down -42%.
According to Shifl’s forward projection on the Trans-Pacific, U.S. West Coast rates will drop next month by -72% compared to September 2021. The decline is predicted to be less dramatic on the all-water U.S. East Coast routes, which are set to fall an average of -54% below the level from a year ago. “The pace of this continued decline points to the market returning to some semblance of normal,” said Shifl’s CEO and founder, Shabsie Levy. “As the spot market rates continue to drop, carriers will be forced to renegotiate long-term contract rates set at the previous higher levels,” said Levy, who noted that some contracts signed on the Trans-Pacific had clauses pegging them to spot rates.
Although carriers are not likely to see the same level of profits in the coming year as they have in the current year, there is a buffer already in place. Shippers have been locked into significantly elevated long-term contract rates which means a higher starting base for renegotiations in the forthcoming renewal season. Moreover, if there is a drastic decline in global demand, the major ocean carriers will not hesitate to ramp up blanking strategies which proved so effective at the start of the pandemic. A prolonged slump, however, could see many of the new-entry carriers with high unit costs obliged to axe services.
Source: The Loadstar
There are no signs of a peak season demand for air cargo. Figures by data provider TAC Index showed overall airfreight rates were down -0.8% compared with the prior seven days, according to the Baltic Exchange Index (BAI). TAC noted prices were relatively unchanged from most major outbound locations.
The data firm said that with inventories high and China still not fully re-opened from COVID lockdowns, it had been predicted that other countries in Asia Pacific would report an increase in rates. “Many observers still expect prices to firm as we head towards the peak season for air cargo, while others suggest that if and when China fully re-opens that could add a large amount of extra bellyhold capacity – which might have the opposite effect,” TAC said in a market summary.
Meanwhile, forwarders are similarly reporting a muted market, both in disruption and demand. Shippers are reportedly switching back to seafreight from airfreight as container shipping supply chain snarl-ups have eased and prices have come down.
Figures released today by the Association of Asia Pacific Airlines (AAPA) show that the air cargo markets weakened further in July “set against a backdrop of falling export orders alongside worsening business and consumer confidence levels”. Subhas Menon, AAPA director general said, “Prevailing supply chain disruptions, inflationary pressures and geopolitical tensions further dampened demand for air shipments.”
Source: Air Cargo News
Sea-Intelligence studied the effects of capacity removal due to vessel scheduling delays and assessed what it meant for the growth in the global fleet and its impact on the global supply and demand balance. The report found that while the nominal fleet grew at a steady rate of roughly 4% year-on-year in 2020-2022, there was a substantial decline in the available fleet growth as delays began to worsen.
Extreme strength in favor of the carriers in 2021 has been driven by a consistently high demand growth compared to the available fleet. The imbalance in demand and supply has only begun to taper off in recent months, Alan Murphy, CEO at Sea-intelligence noted. Demand was consistently 10% higher than capacity from November 2020 to January 2022 but has since narrowed down to 2% versus the pre-pandemic levels.
“All in all, what the data shows is that the extreme spikes in freight rates in 2021 were indeed driven by a situation where demand suddenly exceeded capacity at a global level, primarily driven by the unavailability of capacity. The recent trend towards normalization has in turn also been primarily driven by gradual improvements in schedule reliability and vessel delays, and as long as improvements continue, we should expect that the supply/demand balance will also continue to decline, and freight rates will be under increasing downwards pressure,” Murphy summarized.
Source: Sea-Intelligence
Despite a year-on-year cellular fleet growth of 3.8% as of August 1, three regional trades have shown a significant reduction in services over the past year. According to Alphaliner data, intra-Europe capacity was worst hit, contracting -14.2% year-on-year (y/y) while intra-Asia and all Africa-related services were down -10.3% and -4.3%, respectively (see Figure 1).
The largest route in terms of cellular fleet deployment remains Asia – North America, which saw capacity increase by 31% in 2021. The capacity addition slowed to 62,500 TEU, or 1.1%, to 5.55 million TEU in the first seven months of 2022 but is still 10% higher on a y/y basis.
As more medium-sized or smaller ships have been shifted to deep-sea routes, the average vessel size on all trade routes, except Africa-related services, has decreased. The biggest ships are still deployed between Asia and Europe, where the average size now stands at 15,217 TEU, down from 16,086 TEU in August 2021 (see Figure 2).
The average size on the Asia - North America loops has fallen from 8,809 TEU last year to 8,399 TEU. During the past 12 months, the number of ships deployed in Africa-related services has decreased from 457 to 409 units. This capacity loss was only partly compensated for by deploying larger ships with an average size of 4,077 TEU compared to 3,814 TEU last year.
Source: Alphaliner
Ports in Germany have reached an agreement with its workforce following months of strikes which had disrupted operations at key container terminals including Hamburg, Bremerhaven, and Wilhelmshaven. In the 10th round of negotiations, the Central Association of German Seaport Companies (ZDS) and the United Services Union (ver.di) reached a collective bargaining result for 12,000 employees in German North Sea ports offering a considerable pay increase.
“Our most important goal was real inflation compensation so that employees were not left alone with the consequences of the galloping price increases. We succeeded in doing that,” ver.di negotiator Maya Schwiegershausen-Güth said in a statement.
Meanwhile, an eight-day strike from August 21-29 is underway at UK’s Port of Felixstowe after talks between operator Hutchison Ports and the Unite union failed to settle a pay dispute. The port employer has offered pay increases of up to 9.6% while Unite, asking for a 10% increase, has said the offer was not in line with real inflation rates. Inflation is currently at 10.1% in the UK and is on track to rise above 18% next year, investment bank Citigroup has predicted. Sharon Graham, secretary general of Unite warned the dispute would “escalate” if workers are not offered fresh terms.
Felixstowe handles half the 4 million TEU entering and leaving the UK. With terminals at a standstill, more than 10,000 TEU a day must be diverted to other ports in the UK or Northern Europe.
Source: Journal of Commerce
