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TRANSPORTCEO - 11/10/2018
Not as good as first thought.
Demand revisions suggest that demand from Asia to the Middle East and South Asia is in a steep decline.
Since we last reported on this trade our data provider Container Trades Statistics (CTS) made a substantial downgrade to the shipments data for the Asia to Middle East and South trade that erased the reported very high growth in the first quarter.
The new CTS numbers indicate that westbound trade to both regions grew by 5% instead of the previously reported rate of 16%. Moreover, demand appears to be in retreat as second quarter volumes fell by 3%.
Broken down by region, the Asia to Middle East container trade decreased by 5.7% in the second quarter to 850,000 teu; all but wiping out the first quarter gains. Data for July continued the depressing trend, falling by 11% so that after seven months the trade was down by 1.3% year-on-year.
Figure 1: Westbound Asia to Middle East container traffic ('000 teu), % change year-on-year
Container trade from Asia to South Asia also experienced a deficit in the second quarter, falling by 1.4% year-on-year, as well as a decline in July. However, the depth of the fall-off in traffic was less severe that it was for the inbound Middle East route. After seven months, Far Eastern exports to South Asia were broadly unchanged from the same period last year at 2.5 million teu, representing a tiny increase of 0.4%. The Indian rupee has depreciated by about 12.5% this year, which has tempered imports but should give a boost to the country’s export competitiveness as it takes over more production of western consumer goods from China.
Figure 2: Westbound Asia to South Asia container traffic ('000 teu), % change year-on-year
Figure 3: 12-month rolling average of westbound Asia to MidE-South Asia container traffic, % change year-on-year
On the supply side of the equation, the available slots are gradually being reduced as carriers respond to the weakening trading conditions. Drewry research indicates that westbound Asia to Middle East capacity was some 5% lower in August than the same month a year ago, whereas slots to South Asia were down by 4%.
Assisting that process was the suspension of the joint China Middle East Express (CMX) of Gold Star Line, KMTC, RCL, SM Line and T.S. Lines, that also included calls Colombo in Sri Lanka. The service had used seven ships ranging from approximately 5,000-7,000 teu, although it had been under powered recently due to blanked voyages in July and August.
There have been reports, unverified by Drewry, that suggest a new Far East-Colombo service might starting from a little-known Chinese operator Reach Group. It is understood that Reach has ties to IRISL and will use the four 14,000 teu newbuild units that the Iranian company couldn’t take delivery of because of new US sanctions.
Figure 4: Westbound Asia to Middle East capacity ('000 teu)
Figure 5: Westbound Asia to South Asia capacity ('000 teu)
With westbound ship utilisation levels hovering around the 60% range in both trades, freight rates have been equally weak. Data from Drewry’s Container Freight Rate Insight shows that Shanghai to Jebel Ali 40ft container spot rates were down by 43% year-on-year in August at around $860 per 40ft container.
Freight rates to India suffered an equally precipitous slide. Shanghai to Nhava Sheva 40ft spot rates were $650/40ft in August, down by 44% year-on-year.
Figure 6: Westbound Asia to Middle East utilisation v rates
Figure 7: Westbound Asia to South Asia utilisation v rates
Table 1: Asia-Middle East - 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, ie. 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?.
Table 2: Asia-South Asia - 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, ie. 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.
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