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Home Freight News Updated: Feeling for the bottom of the recession

Updated: Feeling for the bottom of the recession

According to the Danish consultancy Sea-Intelligence the level of blank sailings has reached a “plateau” although there are now more than 500 cancellations in total, this is not so different, from the cancellation levels seen last year.

In addition Sea-Intelligence says that the carriers have been very successful in maintaining rates: as a consequence of the blanked sailings programme rates have stayed 25-40% higher than in 2019, in some trades.

Even so Alan Murphy, from Sea-Intelligence, who reports only seven newly blanked sailings over the previous week argues, “Carriers are maintaining their existing blank sailings, without the need for a large-scale increase in new blank sailings announcements.”

Reports of some vessel calls being reinstated as a sign that the demand levels have reached the bottom and that the cancellation of services have peaked, however, may be jumping the gun. THE Alliance, consisting of Hapag-Lloyd, ONE, HMM and Yang Ming have restored a number of sailings, reported on 19 May, but one fish is not a shoal, so to speak.

As such THE Alliance, and 2M have both announced more void services on both Asia/Europe and transatlantic services. While the reinstated services were on the Pacific, the likelihood is that this reflects expectations of increased demand in the US, rather than actual demand.

Murphy has also recently suggested that the Ocean Alliance, in contrast to the other two major alliances, has a tendency to announce its void sailings later.

“it can also be seen that the approach to the blank sailings differs between alliances. The pattern is that 2M and THE Alliance have chosen an approach where they announce blank sailings ranging quite far into the future – typically to the end of Q2 – and then supplement these with a few additional blank sailings tactically as the situation evolves. Ocean Alliance on the other hand announce blank sailings for a shorter period into the future and have not yet announced much for the later period in Q2,” wrote Murphy on 20 April.

Halfway through Q2 and Ocean Alliance members could still announce cancellations, only COSCO its subsidiary OOCL and APL, subsidiary of CMA CGM, have announced cancelled Q2 voyages so far.

Evergreen Marine Corporation has no void sailings showing in its online schedules, CMA CGM, another major Ocean Alliance carrier also had no service updates for the second quarter on its web pages, while COSCO has four cancelled Asia to Europe services, including Subcontinent calls, all in the April to June period inclusive.

If the cancellation of more services is uncertain, the decline in demand from major economies in the US and Europe also remains unsure, even if the US and parts of Europe are making moves to reopen their economies. Economic data in both regions looks grim. The V-shaped bounce to demand appears to be stretching, it is no longer a U shape either, more a flat-line on the cardiac machine.

Independent consultant Jon Monroe writes, “Demand is returning, or is it? Importers across the spectrum seem to be generating new orders. That is, those importers that are still in business. Covid-19 has forced many non-essential retailers into Chapter 11 and many others on the edge.”

An economic recovery from this pandemic could prove elusive. Credit PSA Antwerp.

Citing Lars Jensen, another Sea-Intelligence consultant, Monroe writes, “We have reached the bottom of the container downturn. Do you feel it? I don’t.”

Monroe argues that this economic downturn is not driven by container shipping lines, but by consumers, many of whom, 60% of those that work outside of their home according to the Washington Post, do not feel sufficiently safe to return to work, fearing that they may bring the infection home with them.

Monroe believes that reopening the economy is only a part of the equation, another element will be whether consumers return to their old habits. That will depend on the level of consumer confidence, “do you feel it?” Asks Monroe, “If not, your neighbour may not feel it also and so on.”

Meanwhile, non-vessel operating common carriers (NVOCC) business is making a rapid recovery this week, with an increase in bookings. But this is not pent up demand, rather the NVOCCs are being hit by a lack of vessel space.

According to Monroe there are signs that the lines are managing capacity too tightly, causing more difficulties.

“In many cases containers are being rolled as many as three times. It is possible that this is done intentionally to ensure vessels are full on successive sailings. NVOCC’s are getting a surge of bookings as the blank sailings seem to be hitting their peak,” said Monroe.

Such mismanagement can affect many members of the supply chain from importers who cannot get containers on a vessel, ports and terminals (terminals now working on and off days), trucking companies and the consumer.

Sea-Intelligence believes that the blank sailings scenario has reached a plateau, Monroe argues that shipping lines are missing a trick as cargo is being rolled-over two or three times, while NVOCCs are finding it hard to find space for their clients, meaning that the lines could add vessels to strung out strings.

Spot rates on the FBX, Freightos Baltic index, are not supportive of this view. China-US West Coast fell 3% over the last week to US$1676/FEU. Though FBX states that rates are 28% higher than this time in 2019.

Trade volumes are expected to be lower over the year, but rates are holding fast at the moment.

China-US East Coast prices (FBX03 Daily) are down 5% from last week, reaching US$2613/FEU, the same as this week last year. Asia to Europe trades have seen a 2% decline to both North Europe and the Mediterranean: while Atlantic rates to the US fell 7% week-on-week, to US$1,823/FEU.

Atlantic rates were more than US$2000/FEU a year ago, while Asia/Europe rates were marginally lower in the same period last year at US$1,390/FEU.

Eytan Buchman, CMO, Freightos, , said “Bricks and mortar retail losses are being accompanied by a shift to eCommerce. As an indicator of the shift, Amazon finally lifted its March restrictions on fulfilment by Amazon (FBA) sellers last week, leading to a 200% pop in international FBA shipments on Freightos.com – a new FBA Freightos.com record.”

However, Buchman added that these steps do not imply a rebound in global demand. He pointed out that Maersk expects a 25% decline in its Q2 volumes, and “the National Retail Federation announced that imports will likely see double digit monthly losses compared to last year at least through August, with a rebound only in Q4 or the start of 2021.”

The National Retail Federation’s view that an early rebound is unlikely is shared on this side of the pond, by Danish Ship Finance (DSF) which argues that the speed of the spread of the virus means a rapid recovery is “increasingly unlikely” with demand falling as consumers postpone or cancel spending, with the increase in risks consumers are spending less on items such as international and domestic travel, leisure and domestic services, said DSF.

With that decline in consumer demand will come a commensurate decline in demand for container shipping. Past experience has shown that the substantial declines in trade volumes will “leave shipping markets oversupplied,” for an extended period argue DSF. The financial institution pointed out that volumes never returned to their pre-financial crisis levels after 2009.

Optimistically, DSF states, “If the pandemic wanes from the third quarter of 2020 and if businesses and consumers regain confidence, a strong rebound could happen. In the event of this, spending on investment goods and consumer durables could ne resumed at close to previous levels once the crisis abates.”

More realistically DSF said that this year will be a very challenging year for the container shipping industry. Supply is already ahead of demand and vessels returning to service after retrofitting scrubbers will “only intensify the situation”.

DSF concluded, “The demand outlook appears bleak but hopes persist that volumes will recover quickly. A prolonged period of surplus capacity will keep freight rates low and scrapping high until a new balance is established. But what happens after that?”

Nick Savvides
Managing Editor

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