Container carriers risk extending ‘freight rate malaise’

SeaIntel Maritime Analysis highlighted how utilization and rates on both the Transpacific and Asia-Europe container trades fell in late 2017 when carriers failed to limit capacity.    Alan Murphy, chief executive of Copenhagen-based SeaIntel Maritime Analysis, cautions that with considerable amounts of new capacity entering force in 2018, carriers will either have to start blanking capacity as in past years, or risk the current freight rate malaise extending into the upcoming contracting season.
   “Blanking” is the practice of temporarily removing some ships from regular, usually weekly, rotations. This is a commonly used practice by container carriers to reduce capacity.
   Murphy made his remarks after his company’s Sunday Spotlight newsletter this week highlighted the fact that in the fourth quarter of 2017, excess capacity in the container trades on the Transpacific as well as between Asia and North America drove rate levels to or near the lowest fourth quarter levels in the 2012 to 2017 period.
   “Throughout the second half of 2017, we have been raising concerns over the lack of capacity reductions on the Transpacific and Asia-Europe trades, and the detrimental effect it was going to have on the freight rates at the back end of last year,” said Murphy. “Looking at the demand and freight rate data for 2017-Q4, we can see that those concerns were fully justified.
   “Since the launch of the ‘new’ alliances in April 2017, the carriers have been reluctant to blank capacity at the same level as in previous years, which has resulted in a weak freight rate environment, despite healthy demand growth.”
   SeaIntel calculated nominal vessel utilization on the Transpacific stood at 80.9 percent in the fourth quarter of 2017, significantly below the 87.7 percent in the fourth quarter of 2016. On a monthly basis, it said utilization dropped steadily, from 88.4 percent in August 2017 to 75.9 percent in November 2017, before rebounding to 81.9 percent in December.
   As a consequence, spot rates on the Asia to North America West Coast, as quoted by the Shanghai Containerized Freight Index, declined from $1,426 per 40-foot equivalent unit (FEU) in August to $1,240 per FEU in December. This week, on Feb. 14, the SCFI was quoted at $1,484 per FEU for U.S. West Coast ports and $2,767 per FEU for U.S. East Coast ports.
   On the Asia-Europe trade, SeaIntel said fourth quarter demand dropped by 10.5 percent on a quarter-to-quarter basis, while capacity was only reduced by 4.8 percent, resulting in excess capacity of 1.2 million TEUs, with utilization dropping quarter-to-quarter throughout 2017, reaching just 74.7 percent in the fourth quarter of 2017. It said that was the second lowest fourth quarter utilization since 2012.
   Monthly utilization dropped steadily, from 83.3 percent in July 2017 to just 68.1 percent in October 2017, with SCFI spot rates to North Europe in that period dropping from $927 TEU to $658 per TEU in October.   
   Nominal utilization then bounced to 81.7 percent in December, with spot rates to North Europe rebounding to $786 per TEU in December 2017. This week, on Feb. 14, the SCFI was quoted at $905 per TEU for North Europe ports.