Container rate slide sounds alarms
Dropped services from the CKYH Alliance point to dark times ahead
The bush telegraph beats louder about crashing freight rates and, in turn, the prospect of hard rain falling in the container shipping line sector looms larger, threatening the recovery of container terminal throughput.
Leaving aside all the add-ons - bunker charges etc - the freight rate available from China to Europe offered by one leading line recently, according to a well placed source, was just $120.
The symptoms of such circumstances are also there to be seen in the withdrawal of certain services and strings on major deep-sea routes.
Typical of this scenario is the recent announcement that the CKYH Alliance – COSCO, K-Line, Yang Ming and Hanjin – will withdraw their joint NE5 service, with the final voyage leaving Shanghai on 3 July.
The NE5 service accounted for approximately 2.4% of the total capacity on the Asia-Europe trade and 20% of Hanjin’s capacity on the route. It is not unreasonable to expect, therefore, that the end of the current financial year will see some losses registered by container shipping lines including Neptune Orient Lines and China Shipping Container Lines, according to the investment bank Jeffries in a research report just published.
Sources also suggest that vessels are only running at 85% of capacity on the Asia-Europe trade lane, a clear indication that capacity is out of sync with demand.
The industry proved during the last crisis that it has the ability to regulate itself with vessel lay-ups and other downsizing. Whether this regulation is durable or not appears already to be an issue.
And as for the brave new world suggested by Maersk – The New Normal - excuse me for being cynical but isn’t this what cargo shippers have been calling for for years? So why weren’t such appeals listened to before and where is Maersk’s contribution to keeping capacity in line with demand?
Well this is the age of spin – that is a New Normal certainty.
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