Drewry: Asia-Med capacity outpacing strong demand growth

Cargo demand between Asia and the Mediterranean grew 5.7 percent for the first eight months of the year, which has encouraged carriers to deploy larger ships on the trade, according to London-based maritime consultant Drewry.    The Asia to Mediterranean trade has been experiencing strong demand gains in recent months, with more robust growth than the adjacent North Europe corridor, which consequently, has emboldened carriers to deploy larger containerships on the trade, according to the latest addition of Drewry’s Container Insight Weekly.
   For the first eight months of 2017, cargo demand from Asia to the Mediterranean grew of 5.7 percent, according to the report, but has been outpaced by an influx of new capacity in the trade.
   From Asia to the West Mediterranean, demand grew 5.2 percent for the first eight months of the year, although Italy’s imports were below average and French imports moving via Marseilles were lower than via northern gateway ports, Drewry said. However, the firm noted that Spain remains the focal point for cargo in the region, and not just of the West Mediterranean, but of the westbound leg overall.
   Demand from Asia to the East Mediterranean increased 6.1 percent for the first eight months of the year, fueled by a calmer political environment in Turkey, according to the report. Imports from Asia to Greece declined, but the niche markets of the Black Sea and Adriatic have continued to outperform the rest of the sub regions.
   “The Adriatic ports are attracting more Central European traffic – to countries such as Austria, Czech Republic, Slovakia and Hungary – away from a North Continental routing, especially as some of the larger ships may experience problems sailing up Hamburg’s River Elbe,” Drewry said.
   As a result of overcapacity and a lack of competition pressure for space on a given voyage, spot rates on the Asia to Mediterranean trade have also softened in recent months, Drewry said.
   The trade is seeing larger ships, as carriers have opted to deploy 14,000-TEU newbuild ships on dedicated Asia-Mediterranean loops, and larger ships on the Asia-North Europe trade are likely to make their way to the Asia-Mediterranean route as a result of cascading, the firm added.
   “As strong as demand has been, it hasn’t been able to keep pace with the rise in capacity, with headhaul ship utilization dipping below 90 percent in April, although it has remained steadfastly in the high 80 percent range ever since,” Drewry said.
   This decline in load factors has caused spot rates to slide, with Drewry’s World Container Index reporting a Shanghai to Genoa benchmark rate of $1,322 per FEU last week, down by approximately 30 percent on the 2017 peak of early May. Drewry noted that rates have generally increased over the last 12 months, but this comparison must be taken with a grain of salt, as last year was one of the worst in history in terms of container freight rates.
   According to the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index, spot rates from Shanghai to the Mediterranean stood at $652 per TEU as of Friday, and have continuously declined since reaching $883 per TEU on July 28. However, Friday’s result was still higher than 12 months prior, when rates from Shanghai to the Mediterranean stood at $565 per TEU as of Oct. 14, 2016.
   Looking ahead, Drewry said, “Westbound freight rates will likely continue to soften in the fourth quarter as more new ships enter the Asia-Med trade during a period of slowing demand growth.”