There are growing signs of demand easing on the Asia-Europe trade, with spot rates sliding for four of the last five weeks as a new economic forecast suggests a feeble 2021 start for the European continent.
Dominique von Orelli, executive vice president and global head of ocean freight at DHL Global Forwarding, said it was becoming clear that the strong demand on Asia-Europe that has filled all available capacity for months was beginning to moderate.
“The demand has not increased further, and will go down rather than up over the coming months,” he told. “There’s no doubt in my mind that rates will stabilize on a more moderate level over the next few weeks. Overall rates will remain much higher than what we have seen before, but not at sky high levels as in the past.”
A spokesman for freight rate marketplace Freightos agreed. “On lanes from Asia to Europe, slowing demand has likely helped keep rates more or less level for the past month, after spiking 265 percent from the end of October to mid-January,” he said.
After a mixed end to 2020, the Eurozone economy is set for a weak start to 2021, according to IHS Markit analysis released Monday, with a consumer-led growth spurt expected only from the second quarter of 2021 as vaccines are rolled out and COVID-19 lockdowns are rolled back. IHS Markit expects Eurozone GDP to contract 1 percent in the first quarter of 2021, with average growth of around 2 percent in the subsequent two quarters.
While January data is not yet available, volume from Asia to Europe in December declined 6.7 percent compared with the same month in 2019 to 1.46 million TEU, according to Container Trades Statistics (CTS). It was a sharp reversal after four straight months of annual growth on the trade that began in August.
The falling rates support a trend of slowing demand. Rates on Asia-North Europe dropped by 5 percent last week to $4,109 per TEU as Chinese New Year holidays began, data from the Shanghai Containerized Index (SCFI) show. The rate has fallen steadily since peaking in early January at $4,452 per TEU, and has risen by 250 percent since the beginning of October. Year over year the rate last week was 383 percent higher.
Short-term rates from online rate benchmarking platform Xeneta show a similar trend, with Feb. 13 rate of $4,371 per TEU representing a 7 percent decrease on the mid-January rate. The rate is 278 percent higher than the Oct. 1 level, and is 374 percent up year over year.
Contracts at record levels
But even as spot rates on Asia-Europe slip off the January highs, contract rates are at record levels on most trades out of Asia. Xeneta data show the long-term rate from China’s main ports to the main hubs in North Europe is up 45 percent compared to last year at $1,170 per TEU. This suggests shippers are prioritizing volume commitments regardless of the rate.
“We see strong increases on long-term rates outbound Asia to the main destinations,” a spokesman for online rate benchmarking platform Xeneta told. “We are also seeing an increased spread – bigger volume players are accepting the increase more than smaller volume ones.”
Even with spot rates at record levels, most containers on the major trades move under contract, and it is the long-term rates where the real profitability can be found for carriers. This was spelled out by Maersk CFO Patrick Jany during his carrier’s 2020 earnings call last week.
“On the spot rates, it is important to state that this is not fundamental for the overall profitability of the company,” he said, adding that Maersk can clearly see an increase in demand for longer-term rates. “What we are seeing is that customers have realised that due to the disruption, the supply chain is important and they want to have a more holistic view of it.”
Months of heavy demand has outstripped vessel capacity on the trades out of Asia, with choked logistics chains slowing the turnaround of containers and leading to severe equipment shortages, especially in China. Although the Container Availability Index from Container XChange shows an improvement over the past six weeks in the availability of 20- and 40-foot containers at China’s main export hubs, such as Shanghai, Yantian, Shekou, and Ningbo.
Anxious to lock in capacity and avoid disruption, shippers have been signing longer-term rates, driving the China Containerized Freight Index (CCF), a combination of spot and contract rates, to record levels, according to Sea-Intelligence Maritime Analysis.
However, the analyst said that historically, such large deviations from base levels have tended to be of limited duration.
“We could well be in a market that is undergoing an upwards level shift,” the analyst noted in its latest Sunday Spotlight newsletter. “But it would be hard to argue [this will be] a permanent level shift for, say 2022 and beyond … simply due to the substantial declines in operational costs stemming from the fact that vessels operated today are much larger than those operated 20 years ago.”