[170219.EN.SEA] Asia-Europe Freight Rates To Remain Depressed as Tsunami of Capacity Looms

SURPLUS container shipping capacity on the Asia-Europe trades is again rearing its head, triggering projections that freight rates will rise by just 6.5 per cent even though freight rates are 25 per cent lower than in 2013, according to London analysts Drewry that calculates total cellular capacity of 450,000 TEU is scheduled to join the ranks this year.

Between this year and next, box ships aggregating 1.1 million TEU are due to be delivered following an increase of 530,000 TEU capacity delivered in 2018, exerting further pressure on Asia-Europe freight rates.

Attempts to mitigate the effects of these behemoths entering the trades include deploying mega ships on the Asia to Middle East trades for the first time, slow steaming and adding an extra ship to a number of services and boosting the number of blanked sailings.

Vessels Value, a London-based shipbroker and shipping data specialist, indicated that there are 90 ships of 18,000 TEU currently on order and slated for delivery this year and next, reported FreightWaves, New York.

These vessels can only be deployed on the Asia-Europe trades owing to their sheer volume and will add significant capacity to the 120 ships aggregating 1.8 million TEU already plying these routes.

Drewry Container Research senior manager Simon Heaney told FreightWaves that most of the 450,000 TEU newbuild capacity will be delivered to the Ocean and 2M alliances.

Cosco, part of the Ocean Alliance, will take delivery this year of six vessels of between 19,000 and 21,000 TEU, while Mediterranean Shipping Company from the 2M Alliance with Maersk Line has ordered 12 vessels of 23,000 TEU, with seven or eight of them slated for delivery in 2019, according to Maritime Strategies International (MSI) analyst Daniel Richards.

Mr Richards believes that MSC is eager to receive as many of these vessels as possible because they will be fitted with scrubbers and will be able to use cheaper high-sulphur-content marine fuel after the new International Maritime Organization regulation is enforced on January 1 2020 (IMO 2020). After this date vessels not fitted with scrubbers will need to use the more expensive low-sulphur-content fuel.

For the first time, the Asia to Middle East trades are to see 20,000 TEU vessels deployed in this region, with the Ocean Alliance's 'Day 3' network revamp hiving off the Far East-Middle East leg from a transpacific pendulum service to create a dedicated Far East-Middle East service, the ME5.

The new dedicated loop is expected to use 20,000 TEU units instead of 10-13,000 TEU ships on the previous loop.

Drewry also points out that to achieve the projected rate increase ships must have a greater utilisation (load) rate of 90 per cent. However, westbound Asia-Europe utilisation has averaged 80-85 per cent and should that level of utilisation persist, rates will dive again.

Source : HKSG.