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IMO 2020 and blank sailings to define Q4 container markets

Image: Jim Allen/FreightWaves

The introduction of new IMO 2020 low-sulfur fuels and blanked sailings will dominate container markets in the fourth quarter, according to one leading analyst.

As reported in FreightWaves, shippers and forwarders have expressed confusion over the timing and transparency of new charges now being introduced by container lines as they phase in low-sulfur fuels — and pass on higher costs to customers — ahead of the Jan. 1 mandatory implementation date set by the International Maritime Organization (IMO).

Shippers are also wary that container lines might hike the fuel component of freight to compensate for bearish spot rates.

The latest monthly report from Maritime Strategies International (MSI) argues that liner charges to customers as they introduce the more expensive low-sulfur fuels will define box shipping markets in the coming months, although MSI is skeptical of claims that expected fuel price increases in January will lead shippers to front-load cargoes.

“As January 2020 looms, there is anecdotal evidence that shippers will bear increased bunker components of freight once the industry switches to cleaner fuels,” said the report. “This is admittedly clearer on the trans-Pacific trade, where the prevalence of annual contract arrangements provides better visibility than on other trade lanes including Asia-Europe, where annual contracts are less extensively used by shippers and forwarders.”

After recent spot rates losses on the main east-west ocean trades, analysts are mostly in agreement that further rate weakness is likely, even though carriers are expected to blank more sailings in the coming weeks. Some capacity also will be withdrawn as carriers rush to fit vessels with scrubbers to avoid paying premiums for low-sulfur fuels.

“In the most recent Shanghai Containerized Freight Index assessment, Asia-North Europe spot rates fell to $593/TEU and Asia-Mediterranean rates to $742/TEU, leaving North Europe rates 19% lower than in 2018 and Mediterranean rates 3% lower,” said MSI. “Assessments by Platts and Freightos also point to a marked weakening in recent weeks.”

CMA CGM has now announced a $200 per TEU cut to its published Asia-North Europe rates from mid-October, with other carriers expected to also offer discounts.

Trans-Pacific spot rates also declined during September after a brief rally in late August. “Rates on both U.S. West Coast and U.S. East Coast trades sit 30-40% lower on an annual basis,” said MSI. “Carriers have responded with additional blanked sailings, with the 2M alliance partners the latest to cut capacity.”

As a result, MSI’s near-term outlook for spot rates on the major Asia-Europe and trans-Pacific trades “remains weak,” with the impact of significant blanked sailings deemed “a key variable in the next several months.”

In November MSI predicts average Asia-Europe spot rates of $700 per TEU, although an early lunar new year could lift rates toward the end of Q4.

On the trans-Pacific trade, the picture is more complex due to the “confusing array of different drivers,” including front-loading, new tariffs, old tariffs, seasonal patterns, inventory holdings and the lunar new year.

“Looking at the bigger picture, our view remains much the same,” said the analyst. “Volume growth at the end of 2019 will be negative and likely significantly so to the U.S. West Coast.

“In 2020 the previous year point of comparison for some products will become less challenging, although products targeted in the most recent tariff increases will be more expensive than one year earlier.

“The trans-Pacific’s troubles are here to stay for now.”

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