January demand an annual event, so why the surprise?
Container carriers are issuing warnings of increasing pressure on networks, but it is more likely a ploy to get rates up and keep them there through the first quarter.
Freight rates have risen sharply on the Asia-Europe trade as container lines levy increases in the build up to Chinese new year.
Those carriers that haven’t already raised rates will be doing so next week by US$500 per TEU in some cases.
The lunar new year falls on January 31 and shippers are racing to clear orders before all Chinese factories shut down, many for up to three weeks. Carriers such as Maersk are already warning that their networks are under pressure from the “strong seasonal demand”.
But here’s the thing: The reason there is “strong seasonal demand” is because the demand happens every season. Every year in January there is a scramble by shippers to get exports picked up and delivered before Chinese New year.
Yet shipping lines continue to act as though it is a surprise sprung on them every January and issue warnings of space shortages as utilization soars. Rolled or delayed cargo in this period is common and is something that infuriates shippers who see no excuse for the poor planning.
Demand forecasts commissioned by the carriers, or at least available to them – Container Trades Statistics, Drewry, Alphaliner, etc – show that in the past years ship utilization peaked in January and was at its lowest in February.
The increase in demand is therefore no ambush. One suspects rather that the lines are issuing warnings to support this month’s rate increases and keep them up through the lean February period.
Another factor to consider is the excess capacity in the market. Almost three percent of the global fleet is laid up for winter, comprising close to 300 vessels, and Alphaliner predicts another two years of lay-ups.
However, newbuildings are flooding into service every month, most notably the 10,000 TEU-plus ships that are suitable only for the Asia-Europe and Asia-Mediterranean trades. Here’s Alphaliner again: “An order surge will lead to record levels of vessel deliveries in 2014 and 2015, which will prolong the capacity over-supply situation”.
So if the sharp increase in January export demand in the run up to Chinese new year is a perfectly predictable event, and there is plenty of additional capacity floating around, what seems to be the problem?