East/West: Asia-Med

The westbound trade continues to show consistent growth but it is far from uniform throughout the Mediterranean region.

Despite being one of the weakest months of the trading calendar in terms of demand, lifting results for the headhaul trade out of Asia for November continued to post gains over the same period in 2013 (see Figure 1). November’s 5.0% year-on-year increase means that in the last 20 months the Asia-Mediterranean market has only once experienced a year-on-year monthly fall.

Currently, it is the revival of the developed West Mediterranean markets (including North Africa) that is powering the growth of the westbound trade. November data for this sector marked an 8.3% upturn in cargo movements compared to a year ago, whereas Asian goods bound for the East Mediterranean grew by a more subdued 2.1%. During the first ten months of 2014, imports into Spain climbed by 14% with France and Italy recording gains of 13% and 10% respectively. The overall growth level for the West Mediterranean market has in recent months been distorted by the collapse of traffic moving into Libya. Although it is a relatively small market, Asian exports entering Libya between July and October fell by almost 55% as the country slid again into political chaos.

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

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

In the East Mediterranean arena, the growth of Turkish imports has slowed markedly in recent months, due in part to a weakening lira. Between July and October, Asian products landed in the country advanced by only 5.4% – and in October volumes simply flatlined – whereas a year earlier growth was running at 27%. In the same period, Egypt’s imports of Far Eastern goods have raced ahead by 25%; a calmer political environment and an injection of funds from the Gulf States to stabilise the country’s finances have boosted consumer confidence.
The 12-month rolling average growth rate of Asia-Mediterranean westbound volumes cooled to 6.6% in November (see Figure 2), having reached a peak of 9.3% in May, and represents the lowest pace of growth since October 2013.

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)

2015 will be a challenging year for the trade in a variety of ways. The main protagonists in the market – Maersk, MSC and CMA CGM – will be anxious to ensure a soft landing of their respective new alliance services during the first quarter. There is a new entrant on the route, namely Hamburg Sud, taking slots from UASC, although the German carrier will be very much a peripheral player, focusing mainly on the established West Mediterranean markets.

The conflicts in Syria, Ukraine and Libya will continue to constrict the flow of imports to those countries. The ailing Russian economy – riven by a weakened rouble, a sharp fall in oil prices and western sanctions – will mean fewer Asian boxes being landed at Novorossiysk, and neighbouring countries in the Black Sea may also suffer. As the West’s relations with Iran continue to thaw, less cargo will be diverted via Turkey or the Black Sea eastern seaboard ports. The amount of West African transhipment cargo carried on Asia-Mediterranean loaders may reduce as carriers start to look at alternative ways of serving the sub-Saharan market, including working cargo over new hubs such as Lome.

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

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

While Spain and, to a lesser extent Italy, seem set to continue along the road of economic recovery, the renewed internal political turmoil in Greece threatens to bring the country back to the precipice again. In December, the eurozone officially tipped into deflation, which may prove to be a double-edged sword. On the one hand, cheaper prices – especially fuel cost savings – may prompt Europeans to spend more on imported consumer goods. Equally, there is the argument that households will defer purchasing certain goods in the expectation that prices have further to fall.

Monthly capacity was shaved back to some 415,000 teu in both October and November (see Figure 3) through the mechanism of blanked weekly sailings, and across the whole of the fourth quarter slots provided were down 3.4% against what was offered in the last three months of 2013. Compared to the last quarter of 2012, the compression this year amounted to 4.7%.

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)

This diligent capacity management on the part of the carriers – resulting in a vessel utilisation factor of still some 90% during the last quarter of 2014 – may be saving them costs but it is having little effect in bolstering their revenues. The 15 December rate increase declared by the operators is looking to be a re-run of the 1 November price hike. On both occasions spot rates were booted from around $1,700 to $2,900, but from day one the increase began to unravel. By the second week of December, the November increase had completely been frittered away.

The long Christmas and New Year holiday break – when key staff are on leave – may have temporarily protected the quantum secured in mid-December but during the first week of January spot rates were starting to drift once more below $2,400 (see Figure 5). Despite the relatively healthy vessel load factors during 2014 and the satisfactory growth in headhaul demand, the current spot rate level is still almost $1,000 below where it started the year.

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/ciw)

Our View
Some BCO contract accounts have taken a small increase ($100 per 40ft) for their 2015 business and spot rates should rally at the end of January when the pre-Chinese New Year cargo surge starts in earnest. However, the yo-yoing of spot rates will continue throughout 2015.
Source: Drewry Maritime Research