November 17th 2014
Shipping freight rates from Asia to Europe, the world’s busiest trade route, on Monday logged their biggest-ever weekly drop, as European growth is stagnating and Japan just fell back into recession.
Container-shipping volumes are considered an important barometer of the global economy. Container ships move items as diverse as household goods, apparel, toys, electronics and food. Analysts said they expected further shipping-rate weakness because the peak demand season for Asian exports ahead of the end-of-year holidays is already over.
Prices between Asian and European ports fell 21% per 20-foot container to $934, compared with $1,175 at the beginning of last week, according to the Shanghai Containerized Freight Index.
“Shipping lines have at this point lost control over freight rates,” said Jonathan Roach, container-shipping analyst at London-based Braemar ACM Shipbroking. “They are desperately trying to fill their ships while being hit by a double whammy: a renewed global economic slowdown and a persistent overcapacity of ships.”
The peak season for container operators is between August and the end of October, when imports to Europe from Asia are at their highest for products such as electronics, clothing and toys ahead of the year‑end holidays.
Container shipping, which carries about 95% of the world’s manufactured goods, has suffered for the past decade from overcapacity, leading to sustained falls in freight rates. A plethora of smaller shipping companies have undercut freight rates from Asia to Europe and across the Atlantic and Pacific oceans, hoping to stay in business until the industry recovers.
The benchmark Asia-to-Europe rate stood at $1,765 per container at the start of the year. Several attempts by large operators such as Denmark’s A.P. Møller-Maersk A/S’s Mærsk Line and France’s CMA CGM SA to push through freight increases have failed.
Shipping executives say rates per container below $1,700 are unsustainable. But with today’s shipping-tonnage overcapacity estimated at 30%, low global growth in Europe and Asia is slamming the shipping industry.
The eurozone expected to grow a meager 1.3% next year, according to the International Monetary Fund, and with Japan stumbling this week into another recession, the shipping industry might take years to recover.
With limited growth strategies available, other than aggressive cost-cutting, the world’s biggest container-shipping operators are forming alliances to share routes and deploy their biggest and most efficient vessels in hopes of eventually pushing smaller operators out of the Asia‑Europe trade.
Maersk Line, for instance, is counting heavily on a 10-year alliance clinched in July with Switzerland-based Mediterranean Shipping Co. to further reduce costs, particularly fuel. Industry executives say the so-called 2M alliance will carry about 35% of all goods moved between Asia and Europe, using a combined 185 ships. By sharing ships and ports, the 2M partners expect to cut operational costs by a combined $1 billion annually.