Unraveling the Price War: The Impact of Declining Container Spot Rates on Asia-Europe Trades

Introduction to Spot Rate Declines

The recent decline in container spot rates following the Chinese New Year (CNY) holiday has been a notable trend across various trade routes, particularly in Asia-Europe trades. This decline has been observed as a partial return to work for freight forwarders post-holiday, welcomed with falling spot rates across most major trades.

The Shanghai Containerised Freight Index (SCFI) reported declines across all its trade routes, except for a 10% week-on-week increase on China-Mexico. The SCFI’s China-North Europe and China-Mediterranean rates dropped by 16% and 5%, respectively, while rates to the US west and east coasts both fell by 5% week on week gCaptain. Drewry’s World Container Index (WCI) showed a 5% decrease in the Shanghai-Rotterdam leg, finishing the week at $3,125 per 40ft, a 29% year-on-year drop. The Shanghai-Genoa leg was down 4%, at $4,236 per 40ft, a 19% decrease year on year gCaptain.

The WCI’s Shanghai-Los Angeles and Shanghai-New York legs both declined by 1% week on week, to $4,717 and $6,212 per 40ft, respectively. However, unsolicited quotes from Chinese forwarders offered spot rates significantly below these figures, with one quote at $2,300 per 40ft from Shanghai to Los Angeles and Oakland, and another at $3,600 per 40ft from Shanghai and Ningbo to the US east coast gCaptain.

The main lever for carriers to halt the slide in rates is to curtail capacity. Xeneta head analyst Peter Sand warned that the number of blanked sailings is likely to significantly increase. According to Xeneta data, the number of blanked sailings will steadily increase, reaching 38,900 teu of shipping capacity on the Far East-Mediterranean trade in the week commencing February 24, an increase of 318% on current levels. On the Far East-North Europe, blanked sailings will equate to around 75,700 teu of shipping capacity by February 24, an increase of 449% gCaptain.

Indicators of a Potential Price War

This chapter explores the indicators suggesting a potential price war in the Asia-Europe trades. Key points include carriers offering very low rates to attract business and the likelihood of increased blanked sailings. Zencargo VP of global head of ocean freight Anne Sophie Fribourg notes that certain carriers are offering pre-paid terms at rates around 20% below the rest, while Xeneta head analyst Peter Sand warns of a significant increase in blanked sailings.

The recent declines in spot rates across various Asia-Europe trade routes, as reported by the SCFI, indicate a deepening price war in the region. The SCFI data shows a 16% drop in China-North Europe rates and a 5% decline in China-Mediterranean rates, with a 10% increase only on the China-Mexico route. Similarly, Drewry’s WCI reports a 5% drop in the Shanghai-Rotterdam leg, now at $3,125 per 40ft, and a 4% drop in the Shanghai-Genoa leg, at $4,236 per 40ft. These rates are down 29% and 19% year on year, respectively gCaptain.

Anne Sophie Fribourg attributes the low rates to carriers anticipating weak demand. Certain carriers, particularly those in the Gemini alliance, are offering spot rates around 20% below the market average on pre-paid terms. This strategy is seen as a psychological move to attract business during a period of low demand, particularly post-Chinese New Year gCaptain.

Peter Sand warns that carriers are likely to increase blanked sailings to curb the rate decline. Xeneta data predicts a significant rise in blanked sailings on the Far East-Mediterranean trade, from current levels to 38,900 teu by the week commencing February 24, an increase of 318%. On the Far East-North Europe route, blanked sailings are expected to reach around 75,700 teu, a 449% increase. Sand emphasizes that carriers will employ various strategies to maintain rate stability, including capacity management and the introduction of new services gCaptain.

The Asia-Europe trade is a critical component of global maritime commerce, facilitating a significant portion of international trade. The region’s economic prosperity is intertwined with efficient and cost-effective shipping services. The current price war poses challenges and opportunities for stakeholders. Shippers are advised to secure long-term agreements to ensure capacity and mitigate the impact of fluctuating spot rates. Carriers, on the other hand, must carefully manage their fleets to balance profitability with market demands gCaptain.

Expert Insights and Recommendations

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Conclusion and Future Outlook

The final chapter of our analysis delves into the current market dynamics and provides strategic recommendations for shippers and carriers navigating the Asia-Europe trades. The recent decline in spot rates post-Chinese New Year has sparked concerns about a potential price war, which underscores the need for proactive risk management and strategic planning.

Current Market Dynamics

The SCFI and WCI have both reported significant drops in rates across various trade routes. The SCFI data shows declines across all trade routes except for a 10% increase in China-Mexico rates. Specifically, the China-North Europe and China-Mediterranean routes saw drops of 16% and 5%, respectively, while rates to the US west and east coasts fell by 5% week on week. These declines are part of a broader trend of falling spot rates, which are now some 29% and 19% down year on year for the Shanghai-Rotterdam and Shanghai-Genoa legs, respectively.

The WCI data further supports this trend, with the Shanghai-Los Angeles and Shanghai-New York legs both declining by 1% week on week. However, unsolicited quotes from Chinese forwarders suggest even lower rates, with some quotes as low as $2,300 per 40ft from Shanghai to Los Angeles and Oakland, departing next week, and $3,600 per 40ft from Shanghai and Ningbo to the US east coast. These quotes highlight the intense competition among carriers to secure cargo and fill their vessels.

Potential for a Price War

The deepening price war on Asia-Europe trades is evident in the aggressive rate cuts being implemented by carriers. Deepsea container carriers, led by Maersk and MSC, have started cutting Asia-Europe rates in the hope of filling their ships during the usual post-Chinese New Year lull. This strategy is part of a broader trend of carriers curtailing capacity to halt the slide in rates. Xeneta data indicates that the number of blanked sailings is likely to significantly increase. Blanked sailings on the Far East-Mediterranean trade are expected to reach 38,900 teu by the week commencing February 24, an increase of 318% on current levels. On the Far East-North Europe route, blanked sailings are expected to equate to around 75,700 teu by February 24, an increase of 449%.

Strategic Recommendations

1. Diversify Cargo Allocations: Shippers should consider diversifying their cargo allocations across different carriers and routes to mitigate the impact of rate cuts and capacity constraints. This strategy can help secure better rates and reduce the risk of rate wars.
2. Long-Term Contracts: Maintaining a certain amount of cargo under long-term agreements can provide shippers with security and predictability. This approach can help offset the volatility in spot rates and ensure access to capacity.
3. Risk Management: Carriers should implement robust risk management strategies, including hedging against rate fluctuations, optimizing capacity utilization, and developing contingency plans for unexpected market developments.
4. Capacity Management: Carriers must continue to optimize their capacity management strategies to maximize vessel utilization and minimize blank sailings. This includes leveraging data analytics and predictive modeling to anticipate market trends and adjust capacity accordingly.

Conclusion

The recent decline in spot rates post-CNY has highlighted the potential for a price war in the Asia-Europe trades. Shippers and carriers must be prepared to adapt their strategies to navigate this challenging environment. By diversifying cargo allocations, securing long-term contracts, implementing risk management strategies, and optimizing capacity management, stakeholders can mitigate the impact of rate wars and ensure the stability of the supply chain. The potential for increased blanked sailings underscores the need for strategic planning and proactive risk management. As the market continues to evolve, it is crucial for stakeholders to stay informed and adapt their strategies accordingly to navigate the complexities of the container shipping industry.