What Peak Season? Key Container Trade Hardly Bumped, Says Analyst

The Asia-to-Europe container trade has been struggling under the weight of excess capacity and global trading uncertainty through most of 2019. With a slew of blanked sailings announced and the introduction of IMO 2020 low-sulfur fuels expected to take capacity out of the market, do container-line executives have cause to hope that rates might stop falling?

Not really, according to MSI container analyst Daniel Richards. MSI's latest report on the container trade concluded that positives for lines in the fourth quarter were hard to discern following a slow summer peak season. Richards concurs.

"It has been a disappointing peak season," he told FreightWaves. "Asia-North Europe rates have lagged 2018 levels since Q2, and it feels a stretch to even describe it as a ‘peak season.'"

Spot freight rates on the World Container Index on the Shanghai-to-Genoa lane plummeted 13% last week, dragging the global composite index down 6% as a result, according to London-based shipping consultancy Drewry. Spot rates on the Shanghai-Rotterdam trade now lag 9% compared to this time last year.

Richards said volumes into the Mediterranean had performed better during the summer peak season than on lanes into northern Europe. "There was more upside on the Asia-Med route, although rates here have fallen off quite sharply since mid-August," he said. "And this against a backdrop of healthy demand data through July – up around 5% year-to-date across both sub-trades.

"So it remains an overcapacity story, principally driven by the Ocean Alliance on Asia-North Europe, and a mix of 2M and THE Alliance on Asia-Med."

According to Richards, rates in the coming weeks will continue to be anchored by vessel overcapacity. "The near-term outlook [for container lines] is poor, although the volume of tonnage removed around Golden Week could provide a temporary boost to rates," he said.

"By our latest count, and if you go by the scheduled departure date from the final Far East port of loading, 16 out of 130 sailings are blanked in October according to liner schedules and announcements – nine on Asia-North Europe and seven on Asia-Med.

"It's unlikely you'll see many more announcements for that month if you have already removed 10-15% of regular capacity, but you could see more in November if demand fails to pick up."

After Germany's retail sales saw a greater-than-expected fall in July, and with consumer sentiment under pressure from "heightened trade rhetoric and action," MSI takes the view that unless there are major service cuts, Asia-Europe rates are unlikely to recover in the coming months.

"Following a surprisingly strong first half of 2019, many observers expect that the Asia-Europe headhaul trade faces a ‘Wile E. Coyote' moment, where the growth rate will fall off a cliff and the full-year growth rate ends up closer to initial expectations of 2-3%," added the analyst's latest container report. "This arguably seems overplayed, although we certainly expect a slower pace of expansion in the second half of the year."