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Europe-Asia exporters facing ocean space crunch and backlogs

31/03/2017

Shippers, forwarders, lines and analysts report tight capacity on eastbound container services, leading to booking restrictions and rising prices

European exporters needing to ship export containers from Europe to Asia and the Middle East are facing unusually tight capacity for the time of year leading to rising rates, booking restrictions, and backlogs.

Major ocean freight carriers including Maersk Line and Hapag-Lloyd have confirmed the current unusual tightness of capacity ex-Europe eastbound, which is thought to be a result in part of exceptionally high levels of post-Chinese New Year sailing cancellations, which in turn have led to significant price hikes for Europe-Asia container rates.

Although there have been some reports that lines, including the world’s largest carrier Maersk, had stopped taking eastbound bookings from North Europe, Maersk and Hapag-Lloyd both confirmed that they are still accepting bookings from Europe to Asia, but acknowledged that capacity was very tight and that there were some backlogs. Major European customers have reportedly been continuing to obtain their allocations from carriers including Maersk, although some smaller customers have reported a different story, with carriers apparently operating a prioritisation system focusing on the needs of their biggest customers.

Daryl Ridgway, global head of ocean freight at Panalpina commented: “Our allocations are being honoured and fulfilled.”

But companies in the Netherlands told the Dutch financial newspaper Het Financieele Dagblad that shippers in the Netherlands have been complaining about capacity restraints on eastbound routes, with some companies that want to send a container to Asia having to wait until mid-April. Meanwhile, prices are “soaring”.

Freight forwarders in Rotterdam also acknowledged the capacity restraints this week, and a Belgian manager of one major shipping line spoke of “restraints of a magnitude that are a total surprise”.

A spokesman for Maersk Line said “ I can confirm that we are currently accepting bookings. The situation in the market still remains challenging due to high demand, which has made the space situation tight and space issues may persist.

“We have been reviewing our options to minimise the backlog with the least possible impact on the business of our customers. This is naturally a general issue in the market affecting all carriers.”

Asked why there may be a perception in the market that bookings are not being accepted, or whether Maersk was currently only accepting bookings currently from certain priority customers with pre-agreed allocations, he responded: “While there is no booking stop, it is – as mentioned – a challenging situation where there is high demand and space pressure. Therefore there are several factors which need to be taken into consideration for booking acceptance. Maersk Line is committed to continuously exploring all options possible to ensure the least possible impact to our customers of this challenging situation.”

A spokesman for Hapag-Lloyd said “I can confirm that we are also already heavily booked and space is very tight. But we don’t have a booking stop.”

Hapag-Lloyd this week introduced a US$200 peak season surcharge (PSS) for containers from Europe North Continent to East Asia, effective for sailings as of 15 March and valid until further notice. The company confirmed that it was unusual to have a PSS and such tight space ex-Europe to Asia at this time of year, noting that the normal times for a PSS on this lane were September to October and again in January in the weeks leading up to Chinese New Year.

Patrik Berglund, CEO of containerised ocean freight data specialist Xeneta, said Xeneta’s data and feedback from customers confirmed some of these trends. “It corresponds nicely with what we are hearing from our network and also with what we are seeing from our data,” 

Xeneta’s data indicates that the current short-term rates for 40’ containers from North Europe to Asia averaged US$969. This level of pricing started in November and December ahead of Chinese New Year and had stayed high – and slightly continued to move upwards, Berglund said.

He said it was difficult to give a precise and short answer to the reasons for the current unexpected capacity crunch and high prices, but suggested it was due to a combination of carriers extracting more capacity than predicted demand and re-routing of capacity onto other corridors.

Xeneta had indicated in the lead-up to Chinese New Year that container lines operating on Asia-Europe trades were “taking stronger measures” than usual to maintain the recent recovery in ocean freight prices by making major cuts to capacity in the weeks after Lunar New Year.

Since towards the end of 2016, the market has experienced a strong and sustained recovery, with container rates around 125% higher than they were around this time last year for Asia-Europe routes, Xeneta said. Xeneta’s sources had indicated that carriers were “taking stronger measures to deal with overcapacity to make sure the market stays up”, indicating that lines were attempting to prop up prices by reducing westbound sailings by 33% in the week immediately after Lunar new year and by around 43% from full capacity the following week. 

Xeneta noted at the time that this behaviour from carriers may mark a distinct difference compared with this period normally in previous years, when rates traditionally slide in the aftermath of Chinese New Year.

Industry sources are also speculating that among the other factors contributing to the current tight Europe-Asia capacity is the fact that there is still ‘Hanjin capacity’ that is still not back in the market following the Korean shipping line’s collapse last August.

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