Supply/demand: Asia-ECNA

Ocean carriers sat on the fence with vessel capacity from Asia to the East Coast of North America between November and February in the hope that cargo volumes would improve. They didn’t, so much remains to be done to restore profitability. Eastbound Ocean carriers continued to apply a ‘wait and see’ policy in the tradelane from Asia to the East Coast of North America between the winter months of November and February. Schedules remained largely unchanged, with only individual sailings cancelled. Five were taken out in October, followed by four in November, six in December, five in January and nine in February – the latter being timed around the Chinese New Year holiday between 10-17 February.
October’s effective eastbound vessel capacity of 362,268 teu was therefore reduced by only 1.8% in November, down to 355,746 teu, but this was increased back up to 358,688 teu in December, and then on to 359,256 teu in January, before a slightly more significant reduction of 1.5% to 353,775 teu in February, coinciding with the Chinese New Year factory shut down.
The quandary for ocean carriers appears to have been in predicting eastbound cargo demand. On the one hand, data from the US stock market pointed to increasing company profits and share prices, and the return of a rising housing market – a major ingredient for containerised cargo growth.
On the other, macro-economic data pointed to a tougher times ahead. Although the US ‘fiscal cliff’ came and went quietly at the end of the year, the US Government was finally compelled to implement the so called ‘sequester’ this month, involving a massive $85 billion reduction in public spending over the next seven months. On a full year basis, it is reported that this will take around $2 out of every $100 of planned Government spending. Employees will also be taxed more, taking money out of their pockets, and companies employing more than 50 people will be compelled to offer generous healthcare benefits.
In the final analysis, ocean carriers backed the wrong horse up to November, with August’s eastbound cargo peak of 336,000 teu gradually falling to 275,000 teu in November, a decline of 18%. Although this was followed by growth of 9% in December, up to 310,000 teu, and 305,000 teu in January, much of this is almost certainly seasonal traffic. Many shippers aim to get ahead of the Chinese New Year holiday season, and re-stocking also usually comes into play then.
This meant that ocean carriers continued to be left with a lot of surplus eastbound vessel capacity, with October’s average vessel utilisation of 73% rising to just 77% in November, followed by 87% in December and 85% in January. Vessels surrounding cancelled sailings will have been much fuller, however, with carriers reporting close to 100% utilisation in some cases.
As no further sailing cancellations have yet been announced, ocean carriers must be hoping for a further rise in cargo. The merging of the Grand Alliance’s and New World Alliance’s schedules is only scheduled for May, and it is still not yet clear how much capacity will be taken out – if any. The G6 members are currently finalising berthing windows with relevant terminals, and more details are expected in week 11.
The GA currently offers four weekly services on the route, and the NWA has three. Each includes one South East Asia loop via Suez, with the remaining North East Asia loops passing through the Panama Canal. The most likely scenario is that the two services via Suez will be merged into one, thereby enabling the deployment of bigger vessels over 7,000 teu cascaded down from the Asia-Europe tradelane. Were this to happen, eastbound capacity would only be reduced by approximately 1.5%.
Such action is not yet possible for the five other services via the Panama Canal due to its width restrictions, so it is likely that more cargo will be routed via Suez this year to absorb surplus vessel capacity.
This was one of the messages delivered by Maersk Line’s chief executive Soren Skou at the JoC’s TPM conference in Long Beach last week. He envisaged that as much as 40% of East Coast cargo would be delivered via Suez this year, compared to 10% in 2008. Transit times would be longer, but the economies of scale of bigger ships would more than off-set the extra cost. It would, he claimed, help solve a problem faced by Maersk Line for a long time – namely, how to make money on the route.
Westbound
Vessel capacity provided by ocean carriers from ECNA to Asia remained more-or-less unchanged between October and February. Only small variations around the overall average of 284,000 teu took place.
Cargo availability was also steady, with December’s anomalous high of 197,000 teu probably only being due to the way sailings were cancelled in the surrounding months, and shippers trying to get ahead of the Chinese New Year holiday.
This meant that average westbound vessel utilisation grew from 61% in November to 70% in November, but then fell back to just 57% in January.
Source: Drewry