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Overcapacity will keep lid on sea freight rates over coming slow season

SHIPPING lines would have to cancel 67 sailings in order to stabilise freight rates in the traditionally slow fourth quarter and into January, however, there is very little chance of this happening given carrier's insatiable thirst for market share.

"Why this is the case, only the carriers can answer, but it does seem quite likely that under the shadow of the new alliances, a focus on market share rather than profitability may have driven the carriers' pricing, which inevitably leads to lower freight rates," SeaIntel stated in its latest Sunday Spotlight.

The Freightos Index shows that for eight weeks in a row, rates on US imports from China have trended downwards. "One of this should come as a surprise. The market is in chronic oversupply", Freightos stated. 

The Freightos rate from China to the US west coast in the week of October 9 is US$1,712 per TEU, a decline of 15 per cent year on year. The US east coast rate is $2,491 per TEU, down 17 per cent. 

Industry analysts expect rates remain under continued downwards pressure for the rest of the year. To make matters worse, this year capacity in the fourth quarter is expected to increase compared to the third quarter, SeaIntel stated.

Rather than culling capacity this year as occurred last year when Hanjin Shipping's departure removed seven per cent of capacity from the Pacific, carriers have yet to announce capacity reductions for the coming slow months. 

In fact, they will continue to take delivery of large ships for their Asia-Europe services. "Last year's peak season was only saved from total disaster by the Hanjin collapse. Since then, the purchase of super-sized ships by large carriers has continued unabated," Freightos stated.

Although the forecast increase in capacity in the fourth quarter compared to the third quarter this year is not startling, the capacity comparisons with the fourth quarter of 2016 are. 

SeaIntel said the rise in capacity this year from Q3 to Q4 to the US west coast is just 0.3 per cent, but total capacity increase compared to Q4 2016 is 10.4 per cent. The US east coast capacity increased 4.1 per cent compared to Q3 this year, but compared to Q4 2016, year-on-year growth in capacity will be a "staggering 21.9 per cent", SeaIntel said.
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