Lines begin to withdraw capacity
June 22, 2011
Shipping lines have begun withdrawing capacity from the floundering Asia-Europe trade.
On Friday, it was revealed that Cosco, K Line, Yang Ming and Hanjin Shipping – the CKYH Alliance – would axe their joint NE5 service, with the final voyage leaving Shanghai on 3 July.
According to IFW’s sister publication, Lloyd’s List, the NE5 accounted for around 2.4% of the total capacity on the Asia-Europe trade and 20% of Korean-headquartered carrier Hanjin’s capacity on the route.
The move was seen as an attempt by the carriers to reduce capacity supply on the trade and, therefore, drive up rates that continue to decline.
The latest Shanghai Containerised Freight Index (SCFI) shows all-in spot rates on the Asia-Europe trade are down $11 per teu on the previous week.
This has drawn criticism from other players, with one independent forwarder accusing the multinationals of undermining the market – saying margins had been “shredded”.
The larger freight forwarders contacted by IFW declined to comment.
Broker ACM/GFI said the declining rates were being caused by falling utilisation rates on the Asia-Europe trade.
“The unit cost of the ultra-large containerships only holds if the utilisation rates are high,” it said.
“However, with utilisation rates reported to be higher this month, at around 80-85%, we have yet to see any support to rates.
“Many market participants in China are skeptical of a bounce in freight rates anytime soon, as carriers continue to fight for cargo by slashing rates even further in the current rate war.”
But another broker, Clarkson Securities, said the withdrawal of capacity could be a turning point.
“The first signs of some service alterations to move tonnage away from the arterial westbound trade could prove to be an early signal that the balance is shifting,” it said.
Members of the CKYH Alliance are not the only carriers to have removed capacity from the Asia-Europe trade of late, Wan Hai and Pacific International Lines have axed their joint Asia-North Europe service and instead buy slots from Cosco.
