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Port Report: Further blank sailings forecast by container lines as spot rates tumble

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Container shipping lines are expected to blank more Asia-Europe sailings in the coming quarter as they seek to stave off further freight rate declines after a weak peak season.

“Across the board, peak season this year is down compared to last year,” Eytan Buchman, CMO of Freightos, told FreightWaves.

“China/East Asia-North Europe prices have lagged last year’s pricing since early summer. This week they are tracking at 76% of last year’s price. The current FBX weekly price of $1,490 per FEU is only 86% of the highest point this year of $1,775 per FEU February 8.”

Spot freight rates on the World Container Index on the Shanghai-to-Genoa lane plummeted 13% last week, dragging the global composite index down 6% as a result, according to London-based shipping consultancy Drewry. Spot rates on the Shanghai-Rotterdam trade now lag 9% compared to this time last year.

Martin Holst-Mikkelsen, senior director and head of ocean freight for EMEA at Flexport, confirmed this year’s peak shipping season into Europe had been tepid. And he expects further “significant” erosion of spot rates this month and a tough October to follow for box lines.

“The upcoming Golden Week holiday in China October 1-7 likely won’t change that or support notably higher rates in the weeks to come either,” he said. “This despite a reduction in capacity through blank sailings following the holiday.”

As reported in FreightWaves, European demand has been clouded this year by bearish economic growth and trade uncertainty, not least with Britain’s exit from the European Union looming.

“Global trade has been impacted by faltering economic performances, as well as disarray from the China-U.S. trade wars,” added Buchman. “Sluggish economic performance across Europe could indicate a looming recession and that three powerhouses — Germany, U.K. and Italy — may already be experiencing one.”

However, although economic performance has been dampened in Europe, Drewry is still predicting Asia-North Europe westbound volumes will grow 4.3% in 2019, compared to just 1.2% over 2018, while European container port throughput is expected to increase 2.6% year-on-year.

The key factor on the Asia-Europe lanes this year has been excess capacity, not least because it is the recipient for most of the mega-carriers delivered from Asian shipyards. Vessel withdrawals and teething troubles introducing low-sulfur fuels as a result of new IMO 2020 regulations could suck some of this excess capacity out of the market in Q4.

“Some carriers are suspending their largest services for as long as six weeks at a time in an attempt to balance supply and demand, while others are removing services in order to install scrubbers ahead of IMO 2020,” said Mikkelsen.

The supply-demand imbalance that has made 2019 so volatile for shippers using spot markets could continue into 2020. Bimco’s chief shipping analyst Peter Sand characterizes the Asia-Europe trade this year as one of healthy demand with spot rates hitting a ceiling due to excess capacity.

Expecting more of the same through the fourth quarter and into 2020, he warned “economic growth in Europe in 2020 is unlikely to spur demand.”

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