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TRANSPORTCEO - 31/10/2018
Signs of life.
It has been a poor year so far in the North America-East Coast South America container trade, but demand and freight rates have picked-up of late.
Latin America has the lowest port throughput growth forecast for this year among the eight regions in Drewry’s latest Container Forecaster report, with total port handling expected to rise by less than 1%. Fears that Argentina’s austerity plans will not be enough to stem its economic crisis and sharp falls in the value of both the Argentinean and Brazilian currencies are unsettling factors, while truckers’ strike action in Brazil have also affected port throughput.
The malaise is demonstrated in first-half two-way container flows between North America and East Coast South America, which were broadly flat compared to the same period last year. Most of the damage was done in the headhaul ECSA to North America northbound trade, where the decline essentially wiped off the gains from the southbound leg.
According to statistics supplied by Datamar container traffic in the headhaul trade fell by 3.5% year-on-year after six months of 2018 to approximately 285,000 teu. However, more recent data suggests that the export market is righting itself with August’s monthly volume being the best in at least two years and a 15% improvement on the same month last year. It would appear that the currency devaluations and end of strike action is belatedly giving some push to the outbound market.
Given the weaker purchasing power of ECSA consumers the relative sturdiness of the import trade from North America is somewhat surprising. Datamar numbers show that demand had risen by 5.6% after six months of this year to about 240,000 teu and the growth rate increased its tempo further in July (+11% year-on-year) and August (+6.7% y/y).
There are only five weekly container services in the North America-ECSA trade with capacity largely controlled by four carriers: CMA CGM, Hamburg-Sud (Maersk Line), Hapag-Lloyd and MSC. The average size of the ships deployed is 5,400 teu, ranging from 3,100 teu to 6,900 teu. There hasn’t been any significant service news in recent months aside from CMA CGM adding another US port call (Freeport in Texas) to its Brasex service (nine ships averaging 3,400 teu) at the expense of Altamira in Mexico.
With so few services it doesn’t take much to adjust capacity to a significant extent, but the key players have generally kept the supply level constant over the past few months, with a few missing voyages helping to reduce the slot availability in comparison to last year. Versus September of last year, slot capacity was down by 1% in both the northbound and southbound markets.
Carriers’ conservative approach to capacity management paid off in August as the spike in northbound demand pushed average ship utilisation above 70% for the first time in our series dating back two years. The impact on freight rates was immediate with Drewry’s Container Freight Rate Insight showing that benchmark spot rates from Santos to New York surged by $1,000 per 40ft container to land at $3,610/40ft in August. Rates subsided in September, which indicates that the supply and demand fundamentals softened to a degree, but they were still some 22% above where they resided at the same point last year. A similar spike, albeit at a lower dollar quantum was seen in the southbound market from July (see Figure 6). In this case prices have held their ground since.
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?Source: Drewry Maritime Research
It appears that the northbound trade from ECSA to North America is recovering, although it is likely to be an uneven ride. Don’t expect carriers to add more capacity until things settle down.
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