Europe-Asia Capacity Crunch a Sign of Shifting Trade Patterns, says Maersk

The Loadstar
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March 14, 2017

Photo: Maersk Line

By Mike Wackett

(The Loadstar) – The eastbound capacity crunch hitting shippers to Asia is not temporary, but the beginning of a more permanent shift in trading patterns, Maersk Line told The Loadstar today.

The current capacity crunch on the Europe-Asia backhaul leg was originally attributed to a severe cull of westbound sailings during the Chinese new year holiday, but there has also been a big spike in demand, according to Maersk.

Many shippers in North Europe are being refused space by ocean carriers – and even when bookings are accepted, they are seeing their containers rolled over and shipments split.

Some believe they are “being held to ransom” by carriers demanding more money to ship boxes already on the quayside.

Shipping consultant Drewry said the situation was “highly unusual” on the backhaul, where utilisation levels of less than 70% were common and slots used in the repositioning of empty equipment to Asia.

Maersk Line’s trade manager for the route, Sushil Sriram, told The Loadstar a 50% cut in westbound sailings to mitigate the impact of the Chinese factory shut down at the end of February had played a big part in the capacity crisis. However, he argued, this was not the full story.

“The Hanjin effect is still having an influence,” said Mr Sriram, “and there is a bit of a correction taking place on the tradelane.”

He said there was a definite shift in the Chinese economy towards production for domestic consumption, evidenced by the recent rise in the import of raw materials, including iron ore.

Beijing’s long-term strategy for GDP expansion is for consumer demand to replace exports as China’s main engine for economic growth, and Mr Sriram confirmed there was a big increase in demand, especially for western luxury goods – “everybody wants a BMW or a Mercedes”.

Mr Sriram explained that the euro’s continued erosion of value against the US dollar in the past year, as well as further falls in the value of sterling since the UK’s referendum vote last June, have made European exports more attractive in Asia.

“We do not regard the recent demand spike as temporary,” said Mr Sriram, “in fact we are budgeting for high load factors on the backhaul for all of this year.”

On the subject of the capacity shortage out of North Europe, which has seen carriers impose export ‘booking stops’, Mr Sriram said that although Maersk had faced a “challenging situation”, which resulted in a brief stop on bookings for new customers, this had now been overcome.

“We are now happy to accept all export cargo (contract or not), providing customers are prepared to pay our freight rates,” said Mr Sriram.

He added that Maersk Line would “always honour its booking commitments”, which, he added, was not always the case with some shippers.

Maersk Line has increased its FAK (freight all kinds) rates (excluding wastepaper and plastic scrap) substantially since the beginning of the year: for example, a 20ft from Rotterdam to China would cost $1,840 and a 40ft, $2,300.

And rates for normally low-rated scrap have increased by over 200% in the past six months – a 40ft of waste cardboard or paper is now quoted by Maersk at $2,825 out of Felixstowe.

Mr Sriram said that the majority of North Europe-Asia contract rate discussions had now been concluded, but he was “disappointed” by the low level of increases that the carrier had obtained, which he attributed to the contracts being signed before the capacity crunch hit.

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