The transpacific container trade could see increased rate volatility in the coming year, predicted Lars Jensen, the chief executive officer of SeaIntel Consulting.
Speaking at the Journal of Commerce’s TPM 2014 conference in Long Beach, Jensen noted that rates in the Asia-Europe trade have fluctuated more over the past two years as large new ships have entered the trade.
“There is a very significant risk that this is going to spill over into the transpacific this year,” he said, adding that this will occur as larger ships displaced from the Asia-Europe trade “cascade” into the transpacific.
He also said that the trade may see increased numbers of skipped or blank voyages where carriers withhold a weekly strings.
“As carriers are struggling to manage capacity, the tool they are using increasingly for the past two years has been the blanking of sailings,” he said.
Jensen also noted that last year, cascading capacity can affect other trades as well. He said Asia-East Coast South America rates tanked last year because of cascading tonnage and predicted that as ships holding between 8,000 TEUs and 10,000 TEUs seek new deployments, they could create move into the Europe-South America, Asia-West Coast South America, Asia-Middle East and Europe-Middle East trades over the next two years
Jensen noted that the planned new P3 “mega alliance of Maersk, MSC and CMA CGM and [the] expanded G6 (APL, Hapag Lloyd, Hyundai, MOL, NYK and OOCL) and CKYHE (Cosco, ‘K’ Line, Yang Ming, Hanjin and Evergreen) alliances operate only on major east-west routes, and do not, at least initially, directly affect other routes.”
If granted regulatory approval, the P3 and G6 are expected to be operating on all three of the major East-West routes — Asia-Europe, the transpacific, and transatlantic — by the middle of this year. The CYKH operates on those routes today, but plans to link with Evergreen on the Asia-Europe route.
On Monday, Howard Finkel, executive vice president of Cosco Container Lines America, said there is discussion among the CYKH carriers and Evergreen about cooperating on a string that operates between Asia and the U.S. East Coast.
Jensen and others at the conference also speculated that other carriers such as China Shipping, which recently has signed a cooperation agreement with Cosco, or United Arab Shipping Company could join the CKYH alliance.
The addition of those carriers would give the CKYHE more large ships, but Jensen said the P3 alliance will still have an edge in terms of operating costs on the Asia-Europe trade because of the greater average size of their vessels (13,000 TEU by mid-2014 compared to less than 11,500 TEU by the CKYHE and G6).
Jensen said that while the major east-west routes will become increasingly commoditized with carriers competing on a unit-cost basis, on other trades, there will be more opportunity for them to differentiate themselves.
Jensen predicted there will be considerable consolidation in the container shipping industry, saying that he stands by a prediction made several years ago that by the mid-2020s, instead of 20 global carriers, there will be six to eight.
He predicted an increase in the number of “schedule independent products” such as the “Daily Maersk” service, where a carrier gives a guaranteed transit time but may route cargo in different ways or skip sailings.
The use of larger ships will have a big impact on ports, he said, because of the concentration of cargo in a short period of time.
“It matters a lot to a port whether they have to handle two 8,000-TEU vessels, one on Monday and one on Friday, or one 16,000-TEU vessel on Monday. There are a lot more bottleneck effects and a lot more strain on port infrastructure,” he said.