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Ticking along nicely.

Asia to North Europe container traffic is exceeding expectations and with careful capacity management carriers should reap the benefit with higher spot rates.

Headhaul Asia to North Europe demand growth has slowed slightly since the breakneck speed of the first-quarter, according to the latest release by Container Trades Statistics. Westbound shipments after five months increased by 3.8% to 4.1 million teu; the 1Q17 rate was a 4.9%.
The tapering growth rate does lend credence to the view that some shipments were brought forward to March to avoid any anticipated schedule upheaval arising from the realignment of the alliances in April. Nonetheless, the uptick in fortunes for this trade is greater than expected and has led Drewry to carry out a quite radical revaluation of its 2017 demand forecast, lifting it from a previous 2.1% to 4.0% for the year.

Average 12-month shipments have been steadily rising since the end of 2015 with the average monthly shipment reaching 819,000 teu as of May; some 3% above the same month in 2016. Our current annual forecast implies that the growth will plateau somewhat through the remainder of the year. Part of our rationale is that with interest rates at ultra-low levels and falling warehousing costs in Europe, there is less pressure nowadays on retailers having to keep budget-squeezed inventories, which should smooth out some of the peaking in demand throughout the year, especially in the third quarter.

Operational capacity on the Asia to North Europe route has so far increased in line with demand growth. Deliveries of Ultra Large Container Vessels (ULCVs) at the end of the year threaten to tip that balance, but for the time being the fundamentals are supportive of freight rate gains.
Forward schedules indicate that monthly effective westbound capacity will rise to 935,000 teu in August, some 2.6% higher than the same month last year. That figure includes additional slots from a new service from CMA CGM due to start in mid-July. The SEANES service will use eight 5,100 teu units calling Southampton, Rotterdam, Singapore, Laem Chabang, Jakarta, Singapore, Port Klang, Tangier and back to Southampton. Cosco and APL will take slots. SEANES provides a unique direct link between Europe and Jakarta as well as giving CMA CGM an opportunity to deploy excess owned Panamaxes within its global system.

Westbound spot rates were much less volatile in the first six months of 2017 than the back end of 2016. The calmer environment is a testament to the fact that the chaos surrounding Hanjin’s bankruptcy has dissipated and because carriers are more adept at aligning tonnage supply with fluctuating demand by means of blanked sailings.

Drewry believes that the current spot levels will prevail until well into the autumn. There is a danger that rates could come under pressure in the last three months of 2017 when there will be more capacity in place given than in the last quarter of 2016, when all the Hanjin capacity was removed. Load factors could then dip in the final quarter, although judicious voiding of sailings could moderate any falls in prices, in which event the carriers might find themselves in a position to push for a $200-300 increase in the BCO 40ft rates for 2018 contracts. Were that situation to materialise, the trade could very well return to a state of financial health not witnessed for several years.




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