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Rates pick up ahead of contract season on Asia-ECNA

Rates pick up ahead of contract season on Asia-ECNA

30 January 2018

Container volumes rise 7.9% to the US East and Gulf coasts in 2017, far outpacing the 1.3% rise to the West Coast, but prices remain under pressure

Spot rates have recovered in the past few weeks on the Asia-US East Coast trade, although they remain well below the same period last year despite strong recent demand growth.

According to the World Container Index, assessed by Drewry, average spot rates from Shanghai to New York rose 18% last week to $2,869 per loaded 40 ft box (feu), although they remain 20% lower than the same period last year. Figures published on 19 January on the Shanghai Containerised Freight Index suggest that Asia-US east coast spot rates will climb a further 7% this week. But while the East Coast market is expected to continue seeing strong demand in 2018, rising capacity is likely to prevent significant rises in freight rates this year, analysis by Drewy reveals.

Thanks in part to the deployment of larger vessels on the trade, container shipments from Asia to the US East and Gulf coasts grew by 7.9% in 2017, far outpacing the 1.3% uplift in imports to the West Coast, according to data from PIERS. Drewy reported that the mismatch in the growth rates saw the East and Gulf ports increase their share of the market to 34.4%, up from 33% in 2016.

It noted that the shift in the coastal balance eastward has been a constant trend in the past five years, but having slowed in 2016 it reasserted itself last year following the expansion of the Panama Canal mid-2016 that spurred lines to upgrade ships on that route. The 7.9% rise in imports to either East or Gulf ports seen last year “dwarfed” the 4.4% hike of 2016.

“The immediate outlook for US West Coast ports, which have lost approximately 7 points market share over the past six years, is not promising and they are unlikely to be able to arrest the decline anytime soon, although with a large gateway market on their doorstep they should be able to keep the lion’s share of traffic for a number of years yet,” Drewry added.

Combined flows from Asia to all US coasts surpassed 15 million teu last year, rising by 3.5% against 2016. But when data for the faster growing Canada and Mexico markets becomes available, Drewry expect the annual rate for the total eastbound Transpacific to inflate to just short of 6%.

“For this year, we expect headhaul transpacific volumes to increase again, but at a slightly lower rate of around 4.5%, with East and Gulf coasts taking further bites out of the West coast’s dominance,” the container shipping analyst said. “With larger ships now hitting the water on the East Coast run, the competition is becoming fiercer by the day.”

The average size of a ship serving the Asia-USEC (via Panama) loop has grown by over 10% in the last 12 months, with fourteen 10,000 teu plus vessels on parade, Drewry noted, adding that more vessels in the larger size band “will inevitably follow”. In keeping with the general upsizing trend, as part of the THE Alliance, Hapag-Lloyd is planning to switch out four units of 8,700-10,000 teu from its Asia-ECNA via Suez EC4 service with 13,000 teu ships.

Even with the phasing in of bigger ships, the available capacity from Asia to ECNA available to shippers has been relatively stable for a year or so, although as things stand, Drewry expects February’s slots will be around 20% greater than the same month last year, unless more void sailings are announced to coincide with the post-Chinese New Year demand lull.

“Ship utilisation hasn’t generally been an issue for carriers with headhaul ships full to brimming from July through October, although it does seem lines were caught out by a disappointing November when year-on-year volume growth was only half that of October, resulting in a sharp fall in utilisation to around 85%,” Drewy noted.

“Despite the mostly supportive conditions, spot rates on the trade have been trending down for over a year, indicative of cut-throat pricing activity. There is likely to be further competitive friction if SM Line fulfils its plan to launch its first all-water USEC service by May 2018.”

Nonetheless, there has been some respite from the price erosion for carriers, with representative 40ft spot rates adding around $1,000 since the start of January, Drewry noted.

“There is more room for growth before Chinese New Year when demand spikes, but the extent of the inevitable fall-off after CNY will depend on both carriers’ capacity management and pricing discipline with the final resting point setting the benchmark for annual contract negotiations,” it added. “Carriers face an uphill battle as even after the recent upturn, spot rates remain nearly 20% down on mid-January 2017.”

It concluded: “The East Coast market will remain in the ascendancy in 2018, but new competition and difficulties juggling supply with demand might prevent carriers from fully realising the benefits in significantly higher freight rates.”

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