Load factors: Carriers failing to address trade imbalance

  • By Antonella Teodoro
  • •
  • 27 Aug, 2019

Despite significant cutbacks on capacity, including unprecedented blank sailings over the peak season, utilisation levels on the key Asia-Northern Europe route will remain weak in the third quarters. Supply additions are expected to continue to outweigh demand growth into 2020, suggesting carriers will struggle to lift freight rates anytime soon

MDS Transmodal forecasts average load factors on the Asia-Northern Europe trad will fall from around 74% in the second to nearer 72% in the third quarter of 2019

EFFORTS to curb capacity during the third quarter on the Asia-Northern Europe trade will prove futile with load factors and similarly freight rates both expected to be largely unmoved.

In addition to changes made in service features and the termination of others, container lines have been busy cancelling vessel departures to realign the market fundamentals.

CMA CGM has announced that it would withdraw the FAL 1 loop on the Asia-North Europe trade lane, scheduled to arrive in Dunkirk on August 21, as well as its FAL 3 loop scheduled to call Rotterdam on September 11.

But CMA CGM has not been alone to adopt this strategy to respond to the imbalance between demand and supply on this route, with its affiliated Ocean Alliance also holding back capacity in a trend almost carrier wide.

Asia-Europe capacity changes (Q3 2019)

• CMA CGM (SEANE): Service ended at the end of 2018. This unique service operated from Northern Europe to Southeast Asia using smaller panamax vessels.  

• 2M Alliance (SHOGUN/AE1): Deployed capacity reduced by 25%, after replacing its 18,300 teu-19,400 teu vessels with vessels of 14,000-16,600 teu capacity from the switch over with the JADE/AE11 service.

• 2M Alliance (LION/AE6) & 2M Alliance (CONDOR/AE7): Services have seen decreases in deployed capacity by 9% and 10%, respectively, in the third quarter in 2019 compared to last.

Despite the series of cancellations, characterising the peak season of the Asia-Northern Europe trade lane, lines have not succeeded in addressing the gap between demand and supply nor have they seen improvements in their freight rates.

During the first two weeks of August, the Shanghai Containerized Freight Index saw a decline of 14% compared to the same period of last year.

MDS Transmodal forecasts that average load factors on the key east-west trading route – the sum of both directions, will fall from around 74% in the second quarter of 2019 to nearer 72% in the third. Utilisation level are expected to continue their downward track into 2020.

Focusing on the most recent data the most significant change in services serving the Sub-Saharan Africa market that occurred between the second quarter of 2018 and the second quarter of 2019 have been:

Even with the cuts to supply, MDST estimates that deployed capacity during the third quarter will have increased by approximately 5.3% against the same three-month period of 2018, and albeit growth will be slower than last year (estimated at 8.6%) it will still climb at a faster rate than demand.

On the Asia-Mediterranean trade MDST expects combined load factors on services heading east and west to stay largely unmoved at around 50%.

However, efforts to limit supply should relate in higher freight rates towards the end of 2019 and into 2020. Indeed, the SCFI already showed a 3% improvement during the first few weeks of August against the corresponding period of 2018.

Based on MDST’s latest Containership Databank, we estimate that deployed capacity on the Asia-Mediterranean trade lane increased by 3.2% in the year to the third quarter of 2019.

On the Asia-Mediterranean trade MDST expects combined load factors on services heading east and west to stay largely unmoved at around 50%, however, efforts to limit supply should relate in higher freight rates towards the end of 2019 and into 2020.

Indeed, the SCFI already showed a 3% improvement during the first few weeks of August against the corresponding period of 2018.

Based on MDST’S latest Containership Databank, we estimate that deployed capacity on the Asia-Mediterranean trade lane increased by 3.2% between the third quarter of 2018 and third quarter of 2019.

Meanwhile, recent service adjustments and service rationalisation show the increasing role played by Mediterranean ports on the Asia-Europe trade.

Asia-Mediterranean capacity changes (Q3 2019)

• The Alliance (MD1): Deployed capacity has more than doubled against the second quarter of 2018, reaching a service level of 950,000 teu

• 2M Alliance (JADE/AE11): Deployed capacity increased by 23.5% due to a vessel switch between the 2M’s AE1/Shogun on the Northern Europe string and the AE11/Jade on the Mediterranean trade; Vessels on the Mediterranean loop have increased from 14,000-16,600 teu to 18,300-19,400 teu

• 2M Alliance (PHX/AE12): Operating as a Mediterranean – Far East – transpacific west coast pendulum service last year, it is now operating only as a Mediterranean – Far East service. The service deploys larger capacity vessels, 15,000 teu ships compared to 13,000 teu units previously. Overall capacity deployed on this service has risen by 16.5% against last year.

On the Asia-Mediterranean trade MDST expects combined load factors on services heading east and west to stay largely unmoved at around 50%, however, efforts to limit supply should relate in higher freight rates towards the end of 2019 and into 2020.

Indeed, the SCFI already showed a 3% improvement during the first few weeks of August against the corresponding period of 2018.

Based on MDST’S latest Containership Databank, we estimate that deployed capacity on the Asia-Mediterranean trade lane increased by 3.2% between the third quarter of 2018 and third quarter of 2019.

Meanwhile, recent service adjustments and service rationalisation show the increasing role played by Mediterranean ports on the Asia-Europe trade.

In mid-July, Hapag-Lloyd announced the launch of a new service between India and Europe with the only call in the Mediterranean being at the Greek port of Piraeus.

“COSCO will leverage the major hub of Piraeus to offer comprehensive coverage at Black Sea and Adriatic, along with swift transit to central Europe and the Balkans by land-sea express,” Cosco said. This service, however, remains unique.

According to the latest MDST Containership Databank, there is only one other fully cellular service that connects the two areas directly, namely CMA CGM/HAPAG-LLOYD - NEMO/EAX, which is a Northern Europe - Australia service calling at Chennai westbound.

First published on Lloyd's List website August 2019