Carriers continue their attempts at managing service capacity to support freight rates as volumes fall and congestion eases.
Gary Howard | Oct 14, 2022
Drewry noted 64 cancelled sailings across the transpacific, transatlantic and Asia-North Europe & Med trades for the two weeks beginning October 17, around 9% of the 725 scheduled sailings. Eastbound transpacific accounted for over half of the blank sailings at 55%, followed by 25% on Asia-North Europe and Med, and 20% on transatlantic Westbound.
“Thus far, the carriers’ attempts at capacity management appear to have had little effect as freight rates continue to fall week-on-week as reflected in the World Container Index. However, carriers are not abandoning their strategy, even as Chinese markets reopened following the Golden Week holidays (1-7 October),” said Drewry.
Related: Container shipping to hit bottom in mid-2023 forecasts HSBC
Niels Rasmussen, Chief Shipping Analyst at BIMCO noted that despite the cuts to services, “so far it has not been enough to stop rates from falling.”
Golden Week is a traditional opportunity for blank sailings, and multiple analysts noted more severe capacity reduction in 2022 than pre-pandemic levels.
Related: Container lines offer better contract deals as spot rates slide
Drewry’s WCI Composite index slipped another 6% this week, its 33rd consecutive decline to $3,483 per feu, 65% down on-year and 66% below the peak reached in September 2021. Drewry expects continued decline in the index in the coming weeks.
Despite slipping to 7% below the five-year average, the index remains 145% above the average seen in 2019.
Tech company Container xChange noted a “classic boom and bust cycle” in the container industry
“What we now see is not unforeseen. The slowing down of demand, and the glut of oversupply of containers are all a consequence of the disruptions caused since the outbreak of the pandemic. It is like the classic boom and bust cycle.” said Christian Roeloffs, cofounder and CEO, Container xChange.
At the root of the issue, various analysts noted, is the inflationary pressures facing Western consumers, falling consumer confidence and the loss of buying power in Europe. Container xChange called it “the most difficult time in a long time” for Europe. As European confidence slips, so does the price of containers in the region as it faces a glut of boxes.
“Retailers and the bigger buyers or shippers are more cautious about the outlook on demand and are ordering less. On the other hand, the congestion is easing with vessel waiting times reducing, ports operating at less capacity, and the container turnaround times decreasing which ultimately, frees up the capacity in the market.” Roeloffs added.
“While shippers and BCOs are clearly benefiting from falling spot rates on the main East-West trades, they should also closely monitor other transport related costs that may be susceptible to inflation,” said Drewry.
Shipping association Bimco also turned its gaze to the container market and saw a supply/demand balance last seen in 2019 as the market’s reaches the end of its pandemic ride. Full normalisation could be seen by the end of this year, it added.
“Despite the weakening of the market, time charter and container freight rates are yet to reach 2019 levels,” said Bimco. On Clarksons data, time charter rates have fallen by 60% in October when compared to their April peak.
“As expected, time charter rates have responded to the weaker supply/demand balance faster than container freight rates. Through blanked sailings, by closing services, and idling ships, liner operators can reduce supply to meet demand in the freight market whereas this is very difficult in the time charter market. However, liner operators have historically not been very successful at this, except when they have been battling heavy financial losses,” said Bimco.
Charter ship owners have fewer levers to pull to control supply and demand, said Bimco. While they may currently benefit from a tight market, existing profitable contracts and more ships going to drydock ahead of 2023’s environmental regulation, these factors are delays to market adjustments.
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Reference: https://www.seatrade-maritime.com/containers/lines-stick-blanking-strategy-spot-rates-continue-slide