East/West: Asia-Med

Since September, demand has fallen sharply and while carriers have countered this by cutting back capacity it has been insufficient to stop the inevitable erosion of market rates.

In percentage terms, the 11% drop off in headhaul volumes during September compared to August figures along the Asia-Mediterranean corridor mirrored that of the North Europe trade. The month-on-month teu count was down by some 49,000 teu and September turned out to be the second weakest month of the year to date after February (see Figure 1). However, the trade still posted a 6.4% increase compared to twelve months earlier, and in the 18 months since March 2013 the trade has only once returned a year-on-year decline in monthly volume and that was in February of this year when an early Chinese New Year distorted comparisons with 2013.

Asian goods bound for the West Mediterranean sector (including North Africa) witnessed a larger fall in the month – some 13.5% – compared to the 8.5% decline in cargo headed for the eastern sector, mainly due to the fact that much of the Christmas merchandise destined for the developed markets of Spain, France and Italy had been despatched by the end of August. In addition, the worsening situation in Libya impacted on the overall performance of the West Mediterranean sector.

Figure 1
Westbound Asia to Mediterranean Container Traffic (’000 teu)

Source: Drewry Maritime Research (www.drewry.co.uk), derived from CTS (www.containerstatistics.com)

During the first nine months of 2014, the volume split between the western and eastern sectors was finely balanced at just over 1.9 million teu apiece. In that period, West Mediterranean imports have grown faster at 8.9% compared to a 5.2% advance in traffic to the eastern region. Total trade growth for the year to date is registering 7.0% and that is also more or less the level of the current 12-month rolling average, after it peaked at 9.2% in May (see Figure 2).

Westbound loads to Spain soared by 16.2% year-on-year in the third quarter and that performance is indicative of a distinct change in consumer sentiment among the Spanish population in recent months. Despite stubbornly high unemployment rates, the country has witnessed a major turnaround in its economy: Spanish exports have recovered on the back of lower labour costs, the country’s banking system has stabilised and the government’s borrowing costs have tumbled. Imports into Italy and France also achieved double-digit growth between July and September.

Figure 2
12-Month Rolling Average of Westbound Asia to Mediterranean Container Traffic

Source: Drewry Maritime Research (www.drewry.co.uk), derived from CTS (www.containerstatistics.com)

Recovery in Greece’s economy is running at a slower pace and imports from the Far East climbed in the third quarter by a more moderate 5.7%. The growth of Turkish imports has slowed to 7.0% with the currency slipping a further 7% between July and September. Transit cargo to Iran moving on Turkish port CY Bills of Lading has also diminished in recent months. Egypt’s economy is only just showing some flickering signs of recovery and yet Asian imports grew by almost 25%. The Black Sea region remained the laggard with third quarter volumes to Ukraine down 26%. Russian imports dipped by 1.5% and shipments to Bulgaria shrunk by 7%.

Figure 3
Westbound Asia to Mediterranean Capacity (’000 teu)

Source: Drewry Maritime Research (www.drewry.co.uk)

Once a hotspot in the Mediterranean with carriers clamouring to launch direct services from Asia, the Black Sea region has now clearly lost much of its appeal and K Line is the latest carrier to quit serving the area on a direct basis. Together with CSCL, PIL and Wan Hai, the Japanese carrier was a partner until the end of November in the Asia-Black Sea service, which in the past included also Yang Ming and Zim. This product will be withdrawn from the market when CSCL joins the Ocean Three alliance where CGM CMA will operate the Black Sea Express service (BEX), leaving just the Ocean Three and 2M carriers providing direct coverage. At one stage in the past, there were no less than seven direct links between Asia and the Black Sea.

No services have been suspended per se for the slack season although there were a clutch of void sailings in October that resulted in the lowest monthly supply of slots for over three years (see Figure 3). Further omissions can be expected during the remainder of the year and during the first couple of weeks of January; some gaps may simply arise as a result of the two new alliances, 2M and Ocean Three, starting to implement their new schedules. None of this capacity culling has, however, allowed the carriers to effectively stem the haemorrhaging of rates in the spot market.

Figure 4
Westbound Asia to Mediterranean Utilisation v Rates

Sources: Drewry Maritime Research (www.drewry.co.uk); World Container Index assessed by Drewry (www.worldcontainerindex.com)

From a peak of $3,351 per 40ft on 7 August, the going rates had fallen to $1,682 by the end of October. The shipping lines called for a massive $1,000 per teu rate hike on 1 November, which did cause rates to rebound sharply in the first week of the month (see Figure 5). Thereafter, the inevitable collapse followed with rates heading back down to the $2,000 threshold as the month progressed. Currently, spot rates are no higher than a year ago. A further GRI will follow in mid December – coinciding with the end year Bill of Lading cargo spike – with a quantum declared between $750 and $800, and there will most probably be yet another in mid January when the pre-Chinese New Year peak season commences. Both may give temporary respite to the continuous back-sliding but are unlikely to have any lasting effect.

Figure 5
World Container Index Shanghai to Genoa (US$/40ft)

Source: World Container Index assessed by Drewry (www.worldcontainerindex.com)

Table 1
Asia to Mediterranean – Estimated Monthly Supply/Demand Position

Notes: *Based on effective capacity after deductions are made for deadweight and high-cube limitations and then again for out-of-scope cargoes, i.e. those relayed to areas outside the range. Where relevant, operational capacities have also been adjusted for slots allocated to wayport cargoes. Data is subject to change
Source: Drewry Maritime Research (www.drewry.co.uk)

Our View
There is still a premium for Asia-Mediterranean westbound traffic over that moving to North Europe in the order of some $400 per 40ft but even that may be eaten away in the months to come.
Source: Drewry Maritime Research (www.drewry.co.uk)