Efforts to boost spot prices have proven fruitless through much of 2018, according to one analyst, likely to lead to capacity cuts on the trade from next month.
He said even with peak season well underway, carriers were struggling to generate momentum on the Far East-North Europe trade. The most recent August 1 partial increases in rates recorded on Far East-North Europe services attributed to carriers’ previously announced FAK (Freight All Kinds) rates of circa $2,300 per FEU had quickly been eroded, he noted.
“At the start of the month, the market average spot rate was recorded at $1,722 per FEU but has since declined by 0.6% to $1,712 per FEU as of August 24,” he told Lloyd’s Loading List.
US forwarder Flexport reported last week that space on Asia-Europe services had tightened and that potential General Rate Increases (GRI) could be introduced on 1 September. But liner attempts to push through rate increases – often under the guise of FAK hikes – have largely failed to gain traction through most of 2018.
Berglund said since Chinese New Year (CNY) carriers had collectively announced at least six spot rate increases over six months but had only achieved partial success in four instances “reflecting their preference for quantity over quality”.
He noted that after rates declined by 29.4% (-$506 per FEU) between February 16 and April 29, subsequent efforts to boost them had not even reversed previous declines let alone provided carriers with a notable rate improvement. As of August 24, the spot market average on Far East-North Europe services of $1,712 FEU was still below the level of $1,724 FEU noted at Chinese New Year on 16 February, according to Xeneta data.
“Although carriers managed to increase rates by around 7.7% on August 1, the method remains mostly inefficient,” he said. “If the full increase were applied, rates would have jumped by more than 20%.”
Furthermore, on the backhaul North Europe-Far East trade rates have been unable to recover any of the losses reported since April 2017 when rates stood at more than $2,000 per FEU. Rates on the trade are currently down by 16.5% compared to the start of the year and down by nearly 56.6% since April 2017, according to Xeneta.
Drewry’s latest rates analysis on 23 August had Rotterdam-Shanghai spot freight rates down 37% year-on-year.
Removing capacity, a strategy that has been successful on the Transpacific, might be more rewarding for lines seeking a better supply-demand balance while they struggle with higher bunker costs and economic turmoil in Turkey, which is dampening demand forecasts.
Earlier this week OOCL announced a second round of service withdrawals on Asia-North Europe services in October and November. Most other leading carriers have also said they will remove capacity on Asia-Europe services during Q4.