The lingering economic recession in Europe will set off a cascading of vessels that will result in another year of volatile freight rates in the U.S. import trade from Asia, according to an international maritime industry analyst.
Shipping Vessel Cascading a Concern for Freight Shippers
Capacity in the global container fleet increased 9 percent in 2012 and will increase another 6 percent this year. This development is troubling for freight shipping lines because the increase in global demand last year was basically zero, and demand this year will once again fall short of the increase in capacity, Jensen said.
The supply-demand scenario gets even more difficult for freight carriers because much of the new capacity coming out of shipyards this year will be large vessels with capacities ranging from 13,000 to 18,000 20-foot container units.
Vessels of that size are deployed almost exclusively in the Asia-Europe trade because that lane is marked by relatively high cargo volumes and long distances. As a result, Asia-Europe could experience an 11 percent increase in container capacity, and “11 percent is too much” for the recessionary economy of Europe to absorb, Jensen said.
When large ships entered the Asia-Europe trade, somewhat smaller vessels of 7,000 to 10,000 TEUs are shifted into other trade lanes. He added that the most logical trade lanes for those vessels are:
- from Asia to the West Coast of the U.S., and
- from Asia to the U.S. East Coast via the Suez Canal
The new workhorses in the Asia-Europe trade will be vessels of 13,000 to 14,000 TEUs. A string of vessels of that size will free up two strings of smaller vessels for the trans-Pacific, based not only on the larger size of the new vessels but also on the fact that an Asia-Europe string has 10 or more vessels, whereas a trans-Pacific string comprised just five or six ships.
This cascading of shipping vessels into the Asia-U.S. trade could result in “significant overcapacity” this year in the trans-Pacific trade, Jensen said. The result will be another year of rate volatility.
U.S. importers last year experienced the same level of volatility, as freight carriers initiated a half-dozen or so general rate increases and peak-season surcharges. However, a $400 GRI quickly eroded to the pre-GRI rate, so the ensuing GRI was simply added to a rate that had fallen $400, producing a net increase of zero revenue for the carriers, Jensen said. When gauging the success of a GRI, it’s important to measure the level of rates when the hikes take effect, not when they’re announced, he noted.
Freight carriers can be expected to work toward an environment of discipline in which they attempt to mitigate the effects of vessel overcapacity through vessel scrapping, blank (canceled) sailings and slow-steaming.
Carriers will achieve discipline in the trans-Pacific, however, only if they can accept the fact that an 85 percent vessel utilization rate year-round, including during the traditional slack periods, is acceptable, Jensen said.
ETC International provides freight shipping at the best possible freight rates available in the current shipping market. For a list of our shipping container sizes and weight restrictions, and to request a freight shipping quote, click the button below or call us Nationwide at (800) 383-3157.