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Erratic rate discipline undermined the lines in 2011, can they hold their nerve in 2020?

A senior analyst believes that the crucial test for the carriers will come when the battle against the Covid-19 virus has turned in the society’s favour and the lines can see a significant rebound in demand.

Up to now the lines have managed to maintain their rate discipline with lines acting to maintain utilisation levels and to cut their costs by idling capacity, either through installing scrubber technology, using vessels on extended routes, round the horn of Africa rather than through Suez, or by just leaving vessels at anchorage.

This resulted in the lines managing to raise rates on the three major east/west trades on the Pacific, Atlantic and Far East to Europe.

“We’re in the middle of a crisis, so there’s no point trying to be cute now,” argued the analyst, “When things are more settled, and cargo demand begins to return that’s when operators will wonder, ‘can I come out of this crisis as a relative winner?’”

Owners at that point will be under pressure from shareholders and if one of the larger operators decides at that point to make an attempt for market share, as the lines have done in the past, then the rates could come tumbling down, said the analyst.

“I don’t expect that at this time, it looks as though the lines can sensibly manage [demand and capacity ratio] through the year, if the carriers can hold the line.”

According to the analyst, 2011 was one of the worst years, where the rate wars occurred as lines made a grab for market share, but “We’re told that liner shipping’s consolidation and the greater financial discipline of the lines, which were nearly bankrupted in the rate war 10 years ago, then the lines should be able to manage,” added the analyst.

He went on to point out that even with the rate discipline and the “tailwind” which the collapse in the oil price represented, the lines will only make around 3-4% return on capital invested.

“If you do something strategic, which in hindsight you regret, if you grab market share, and take rates down by 3-5% then you will drag the industry down with you,” added the analyst.

The warning from the financial institution came as the lines announced further vessel cancellations during the third quarter, with volumes still depressed, but with the expectation that there will be a sequential improvement in demand and that will lead to the reinstatement of vessels into their original services as the year progresses.

“The third quarter will be stronger than Q2 and Q4 will be better than Q3,” added the analyst, but ship operator must hold the line, emphasised.

It is then a question of monitoring the carriers' performance over the next two quarters to see if the cohesion is maintained. And so the latest round of cancellations can be seen in this context.

THE Alliance will be further adjusting its network due to reduce d demand from the current situation with effect from July 2020.

THE Alliance carriers include Hapag-Llloyd, Yang Ming, ONE and HMM.

North Europe

While the FE4 will continue to be suspended until end of September 2020, THE Alliance will offer an enhanced port rotation of the FE3 services by adding port calls in Ningbo and Shanghai.

Further on the FE2 will sail Eastbound around the Cape of Good Hope effective voyage O13E MOL Triumph, departing North Europe in week 25.

Far East Loop 2 (FE2)

Rotation

Busan – Shanghai – Ningbo – Yantian – Singapore – (Suez) – Rotterdam – Southampton – Le Havre – Hamburg – Rotterdam – (Cape Good Hope)* – Singapore – Busan

Far East Loop 3 (FE3)

Rotation

Ningbo – Shanghai – Xiamen – Kaohsiung – Hong Kong – Yantian – (Suez) – Rotterdam – Hamburg – Antwerp – London Gateway – (Suez) – Jebel Ali – Singapore – Yantian – Hong Kong – Kaohsiung – Ningbo

Mediterranean (MD1-3)

Below, there are details and alternative sailings during periods with void sailings.

Moreover, Hapag Lloyd has implemented the following void sailing on the WCSA and MX services from Far East. The German carrier has, also, given alternative routes for cargo:

In addition, Hapag-Lloyd has announced the void sailing position of South East India - Europe Express (IEX):

The Hamburg-based firm has presented the following alternative routings:

Void Sailing No. 1

Void Sailing No. 2

Additionally, Maersk has announced a cancellation plan on CHX service from Far East Asia - Indian Subcontinent trade.

ServiceVesselVoyage (Westbound)First Port / ETDVoyage (Eastbound)First Port / ETD
CHX
MDV PAC TBN14
029W
Laem Chabang / 25 July 2020
032E
Ennore / 3 August 2020

The Danish carrier has also decided to change the rotations of both SAECS and WAF1 services in Southern Africa – Europe trade, "due to the current congestion in Cape Town Terminal."

Container News contacted Cape Town Terminal's officials, but they had not responded by the time of publication.

Maersk has announced that the SAECS main string will stop calling Cape Town and will provide weekly coverage for Durban and Port Elizabeth ports to Europe.

In addition, the WAF1, currently dedicated to the Eastern Cape market, will become a dedicated Cape Town to Europe Shuttle, according to Maersk, which will deploy additional feeders from Cape Town Terminal (CPT), for onward transit to Europe.

The new service rotations will be:

  • SAECS:
    Durban – Port Elizabeth (PECT) – Algeciras – Rotterdam – London Gateway – Bremerhaven – Rotterdam – Algeciras – Walvis Bay – Port Elizabeth (Coega) - Durban
  • WAF:
    Cape Town – Port Tangiers – Algeciras – Cape Town

The deployment changes will provide the following benefits

The first sailings under this new set-up will be the following:

ServiceVesselVoyageDURBANPORT ELIZABETHCAPE TOWN
SAECS
MOL PROFICIENCY
203B
24 June 2020
30 June 2020
WAF1
LANA
023N
28 June 2020

The following schedules will apply for the vessels prior to the MOL Proficiency and Lana:

ServiceVesselVoyageDURBANPORT ELIZABETHCAPE TOWN
SAECS
SANTA ROSA
202B
2 June 2020
17 June 2020
SAECS
MAERKS LUZ
203B
9 June 2020
25 June 2020
SAECS
SANTA URSULA
203B
15 June 2020
29 June 2020
WAF1
ULSAN
023N
21 June 2020
WAF1
NORTHEN DECENCY
024N
22 June 2020

Antonis Karamalegkos                                                                 Nick Savvides
Editor                                                                                         Managing Editor

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