Smaller trades share the pain as lines shuffle ships
Profitable secondary trades are starting to flag as capacity flows down from the swamped Asia-Europe and transpacific.
The principle of supply and demand is admittedly a fuzzy one when applied to container shipping lines. Even with the withdrawal of some capacity on the Asia-Europe trade, ship utilisation is still around 90 percent as cargo exports slow.
That’s nowhere near good enough with operating costs up and revenue per box dragging on the ocean floor. Anyone placing bets on a peak season happening this year will have already torn up his tickets in disgust.
The problem with withdrawing capacity is that it is not being laid up, it is being shifted to the secondary trades. According to market intelligence outfit Alphaliner, Africa has seen the greatest capacity increase in the last year with the available space growing by 20 percent. Even the trans-Atlantic was up 14 percent and Latin America trade up 13 percent.
The rates on Asia-Africa were holding up better than those on the major trades, with strong demand absorbing the influx of capacity. This cannot last forever because with such pressure on shipping companies to deploy their surplus tonnage, any trade offering decent rates and strong demand will be swamped. Some of the ships on China-Africa and China-Latin America are even 9,000 TEU.
Intra-Asia routes had the lowest capacity increase of four percent, possibly an indication of the lines not wishing to upset the goose laying the golden eggs. The trade has slowed this year, with Alphaliner putting trade volumes at 4.4 percent higher in January to May than last year. The Japanese quake-tsunami-meltdown also caused a severe disruption to regional trade that will take some time to restore.
Over on the transpacific, vessel utilisation in the first half was a dismal 86 percent compared to last year’s 98 percent, based on Alphaliner estimates.
Like we have said before, the lines are going to have to revisit the lay-up strategy. There are simply too many ships for too little cargo, and while the supply-demand principle may not work well for the container lines, it works very efficiently against them.