[151013.EN.SEA] E-W Cascading Sparks N-S Rate War As Capacity Proves Hard To Soak Up

A NORTH-SOUTH rate war is breaking out as east-west capacity is cascaded down to lesser trades, causing rates to plunge, says Dewey's Maritime Research.

In July and August carriers maintained June's eastbound capacity levels at 1,167,000 TEU in July, cutting one per cent in September to 1,146,000 TEU through the cancellation of 12 sailings in September against two in August.

Drewry noted that cascading of unwanted Asia-Europe vessels appears to have stopped, as the average vessel size - 6,175 TEU - has remained constant.

 

New to the transpacific will be the arrival of Mac's two 14,000 Tenures into the Pearl River Express, run with CMA CGM, in October. These, the biggest ever on the transpacific, will replace a 12,400 TEU ship and a 13,100 Truer.

Westbound boxed exports to Asia increased 11.6 per cent in July to 487,000 TEU, compared to May and June's average of 436,500 TEU, but year-to-date volume fell three per cent year on year.

US exporters of waste paper and scrap plastic more than held their own against European suppliers in the second quarter, according to Global Trade Information Services. US exports of meat to Japan also increased volume between the first and second quarter, despite Japan's 20 per cent currency devaluation in March.

"This situation helps to explain why ocean carriers appear to have returned to war with each other over market share between Asia and Europe since August," said Drewry analysts.

"Cascading is seriously haemorrhaging freight rate levels in north-south services. The scale of decline during 2Q13 suggests that ocean carriers are running out of options to soak up surplus vessel capacity," said the report.

Falling all-in prices from Asia to Australia, West Africa, South Africa, India and both the east and west coasts of South America, based on forwarder buy rates for spot cargo, declined significantly, according to Drewry's Container Freight Rate Insight.

The average all-in spot rate from Shanghai to Santos in July was 51 per cent lower compared to January. Shanghai to Lagos was six per cent lower, while the corresponding decreases from Shanghai to Durban was down 19 per cent and to Melbourne off 32 per cent.

"The root cause remains the endless cascading of vessels out of the Asia/Europe trade lane. The average size of all vessels operating between NE Asia and Australia increased by another eight per cent in the 12-month period between 3Q12 and 3Q13, up to 4,365 TEU, on top of the six per cent growth between 3Q11 and 3Q12.

In the Asia/ECSA trade lane, the corresponding changes were 13 per cent on top of 13 per cent, up to 5,848 TEU, and between Asia and South Africa, they were an even more startling 30 per cent on top of 14 per cent, up to 6,123 TEU," said the report.

The one exception noted was between Asia and west coast of South America and West Africa with South America rates increasing two per cent on top of 34 per cent growth.

Drewry's latest Container Forecaster shows 14 newbuilds averaging 12,713 TEU were delivered into existing Asia/North Europe schedules in 2Q13 with replaced vessels averaging 9,782 TEU. They were cascaded down into other trade lanes, such as Asia-Med and transpacific.

Some of the 22 vessels averaging 9,366 TEU, which were replaced by existing vessels averaging 10,357 TEU, were also cascaded down into other trade lanes, which meant that the overall average capacity of all vessels operating between Asia and North Europe increased by 1.7 per cent between 1Q13 and 2Q13 to 10,456 TEU.

Source : HKSG.