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TRANSPORTCEO - 20/09/2018
Capacity management paying dividends.

Asia to West Africa spot rates are inflating as a consequence of tighter capacity in a growing market.

Southbound container shipments from Asia to West Africa in the first seven months of 2018 posted a similarly fast pace of growth as seen last year, driven in large part by a reinvigoration of key economies such as Nigeria and Angola that are benefiting from rising oil revenues.
Headhaul Asia-West Africa container demand after seven months had risen by 6.1% to approximately 750,000 teu, according to data from Container Trade Statistics. For the full-year 2017 the trade experienced growth of 9.6% to reach 1.2 million teu, ending two years of decline.

Source: Drewry Maritime Research, derived from Container Trade Statistics

Given the extraordinary pace of growth seen last year it was always likely that things would slow down this year; although our rolling 12-month average of container volume is heading south it remains in a healthy position based on the latest available data for July 2018 at around 8% above the same month last year (see Figure 2).
It appears unlikely that the trade will be able to match the stellar performance of last year, but nonetheless a strong growth rate in the region of 5-6% would be sufficient to deliver a best annual teu count since 2014, when the trade topped 1.4 million teu.

Source: Drewry Maritime Research, derived from Container Trade Statistics

Carriers in the Asia-West Africa trade have been steadily depleting the number of available slots to the market through 2018 with August’s capacity down by around 3% on the same month last year (see Figure 3).
There hasn’t been much to report on the service front since Maersk Line suspended its weekly FEW7 loop (11 x 4,000 teu) serving Senegal, Mauritania and Benin in February. The monthly fluctuations in capacity have mainly been brought about through missed sailings.
The reluctance to add more capacity, even in a growing market, appears to be a reaction to the over-eagerness to do so at the back end of last year when lines where keen to take advantage of growing demand, but added too many ships and saw utilisation and freight rates tumble.
Therefore, while we expect the amount of capacity to be relatively stable through the remainder of the year and possibly increase marginally month-on-month, as seen in August, the year-on-year comparisons will look negative due to the high baseline set in the second half of 2017.

Source: Drewry Maritime Research

Carriers’ more cautious approach to capacity this year suggests that they might have learned a lesson from last year when they over supplied the market. Ship utilisation in the southbound Asia to West Africa lane for both June and July were five-year highs, helping spot rates surge towards $4,000 per 40ft container, as reported by Drewry’s Container Freight Rate Insight (see Figure 4).
How long this upwards trajectory lasts is debatable. In each of the past five years headhaul ship utilisation has worsened in the second half of the year as carriers failed to accurately match supply with demand. Asia to West Africa volumes tend to be relatively stable from the second quarter onwards so if lines can break free from history and continue to resist adding too much capacity they should be able to sustain the momentum.

Source: Drewry Maritime Research

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 subject to change?

Source: Drewry Maritime Research.

Our view

To get the most out of this trade, carriers should learn from the past and continue with their cautious approach to capacity additions.




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