Transpacific not so dramatic

Transpacific not so dramatic Despite capacity-cutting reports on major east/west trades, transpacific capacity hasn't fallen so far, ComPair Data says.

By Eric Johnson

      Hardly a day has gone by the past three months without notice from an ocean carrier that it is cutting capacity or slowing down its services on the key global east/west trades.
      On the transpacific, capacity reportedly declined 13 percent from January 2009 to January 2010, with services pulled to account for an expected slowdown in container demand post Christmas and the Chinese New Year.
      However, the capacity cuts since August (at the height of pre-Christmas rush) haven't been all that dramatic, according to research by American Shipper affiliate ComPair Data. For one, Asia/U.S. West Coast capacity only fell 6 percent in the last three months of 2009 ('ComPair: Transpacific capacity down 5%-6%,' at www.AmericanShipper.com/links), and it seems to have rebounded further in the weeks since.
      Weekly capacity offered between the Far East and the U.S. West Coast fell only 2.5 percent to 239,947 TEUs between the beginning of August and the beginning of February, according to ComPair Data World Liner Supply Analytics. On all-water services to the U.S. East and Gulf coasts, capacity fell more substantially in that period, 9.5 percent to 78,364 TEUs.
      However, the decreases appear less significant than one might assume, given carriers' determined efforts to redress the supply/demand balance.
      Take this example: in November, CKYH Alliance lines COSCO, 'K' Line, Yang Ming and Hanjin Shipping said they were reducing Asia/U.S. West Coast capacity by 10 percent and transpacific all-water capacity by 20 percent. CKYH, the leading alliance in terms of capacity share in both trades, managed the West Coast reduction by reducing vessel sizes on two of its services.
      But according to ComPair Data, CKYH weekly capacity to the U.S. West Coast fell only 4.7 percent from early November to early February. In addition, Hanjin is increasing the vessel size of its PSX service from northern China and Korea to the U.S. West Coast by 36 percent starting in March, meaning the capacity cuts may turn into a capacity increase by the end of March.
      Drops in capacity for some alliances, like the Grand Alliance's winter merging of its CCX service with its NWX service (its weekly capacity to the U.S. West Coast dropped more than 13 percent from early November to early February), have created opportunities for other carriers. Capacity unattached to any major alliance rose nearly 15 percent from August to February, to more than 60,000 TEUs of weekly space.
      Aside from the suspension of services, carriers have also latched onto slow steaming as a way to soak up excess ship capacity. As American Shipper noted in January ('Slow burn,' pages 34-35, or www.AmericanShipper.com/links), carriers have moved their slow-steaming initiatives from the Far East/Europe trade (where larger ships provide better cost savings on fuel for services run slowly) to the transpacific.
      These moves add total gross vessel capacity to loops, and don't really change weekly capacity. In fact, introducing larger vessels into the transpacific has raised weekly capacity, even as services have been cut.
      Although most carriers have reduced weekly capacity to the U.S. West Coast since August (most notably OOCL, Evergreen and Hanjin), a few carriers have sharply increased their capacity in the last six months.
      Maersk, according to ComPair Data, is now the largest carrier on the trade, with 16,486 TEUs of weekly capacity as of Feb. 14.
      It is volatility in capacity that shippers often bemoan when they say they're more concerned about culling of capacity and changes to rotation schedules than they are about rising rates or slow steaming.
      APL, meanwhile, increased its weekly capacity from 17,429 TEUs in early August to more than 22,000 TEUs in November, a level the Singapore-based line has been unable to maintain through mid-February. Hapag-Lloyd has been on an upward slant on the trade since August as well, increasing from 8,641 TEUs to 9,653 TEUs in November.
      Part of the up-and-down movement of various carriers is due to changes in deployment between the lines in a given alliance. For instance, Hapag-Lloyd's increase in Asia/U.S. West Coast capacity could be partially explained by OOCL's steep drop (44 percent from August to February) in the same trade. OOCL and Hapag-Lloyd are Grand Alliance members.
      Further complicating matters are partnerships between alliances, such as the Grand and New World alliances' two-year tango on all-water U.S. East Coast services. In winter 2008-09, New World carriers APL, MOL and Hyundai Merchant Marine provided vessels on the Grand's SCE service while temporarily pulling its similar NYX loop. In winter 2009-10, the favor was returned, with Grand Alliance carriers temporarily pulling the SCE and supplying ships to the NYX.
      But as carriers fiddled with capacity and services, demand began inching upward. Reports emerged in late January and early February that cargo was being left on the docks in major Asian ports as demand during the slow season was brisker than expected.
      The transpacific appears to be over the worst of the downturn. Volumes finally hit the positive side in December at major U.S. ports. The National Retail Federation and consulting firm Hackett Associates project box traffic will increase 25 percent in the first half of 2010, to 7.4 million TEUs. That is, albeit, on a small base of a moribund first half 2009 volume.
      Brian Conrad, executive administrator of the Transpacific Stabilization Agreement, which counts virtually every major transpacific line as a member, told American Shipper in early February that demand on the trade appeared to be higher by about 10 percent in January over the same period in 2009. Capacity utilization for TSA carriers was in the mid-to-high 90 percent range, he said, a number that more than one carrier has emphasized to American Shipper since the turn of the year.
      In any case, as transpacific shippers and carriers ready themselves for spring contract negotiations, it appears both have ammunition to support their cases. For carriers, demand is on the rise, but for shippers, capacity shortages aren't nearly as endemic as they appear, especially when considering that more than 10 percent of global containership capacity is idled.