The impending Chinese holidays in mid-February that will usher in the Year of the Dog are set to impact once again on the relatively free flow of goods from Asia to Europe as carriers look to maximise this brief window of opportunity for higher freight rates. However, there are conflicting signs for the carriers and as usual in the Asia-Europe trade little is clear-cut.

In 2017 it would be fair to say that the majority of carriers had a reasonable year. Some pretty awful results in 2016 were reversed and previous mergers or announcements of them began to fulfil expectations or at least start to deliver some change, and some cash. The Shanghai Index, the usual indicator of rate fluctuations, remained above USD800 per TEU, sometimes significantly so, for the first 8 months of the year, before somewhat unexpectedly falling at the start of the autumn peak season. Yet even after that it recovered to a shade under USD900 per TEU by the year end and has moved little since.

The initial indications are then that demand is relatively strong and the consequent increased booking activity will both create space limitations, and force rates higher. However, this position has been slow to develop and whilst carriers have been announcing rate increases from early January, and indeed continue to announce, there also appears to have been some slippage and reversals of those increases. The fact that the SCFI has only moved USD27 per TEU from its last posting in 2017 would give credence to that.

The main factor that appears to be underpinning the current market position is the surprising decision by most alliances not to withdraw vessels in far greater numbers than was expected. And as was witnessed last year. Statistics produced by SeaIntel show only some 6% of capacity is being blanked around the Chinese New Year Period, a third of that in 2017 when rates still tumbled by 20%. This capacity withdrawal will still create some difficulties and delays of up to a week around the holiday period are possible, but widespread disruption does not appear likely, unless further late void sailings are announced.

The capacity issue will continue to dominate after the holiday period with a projected 1.5mTEU of capacity set to be delivered to carriers in 2018, well over half in the first six months and much of this slated for the Asia-Europe trade. Some slippage in orders – both Cosco and Yang Ming have recently deferred 2018 deliveries to 2019 – and scrapping, will reduce the net gain but overall capacity looks set to increase by maybe 6%, higher than net demand growth. Managing that capacity will be a major issue for all the Alliances, especially those with the largest growth plans such as Ocean, and it is difficult to see how freight rates will hold firm throughout the year and off-peak periods may be challenging for the carriers.

Yet, the industry is now dominated by only 7 major players, around a third of the number only a few years ago. The top 3 or 4 in particular can exercise far more control than in the past, and the number of carriers who may break ranks and drag rates down to recover market share or fill new capacity is greatly diminished. Carrier performance in 2017 showed more will and resolve to deliver steady if not spectacular results and that looks set to continue in 2018, with savings from mergers and acquisitions benefiting a number.

The next few weeks leading up to and beyond Chinese New Year may bring some local challenges as specific void sailings squeeze the available space in some areas, possibly more so in Central China around Shanghai and Ningbo, and equipment may becoming an issue in these areas, specifically 40HC units. We would therefore encourage early placement of bookings in order that space and equipment is available, and we will be having this discussion with suppliers also.   But, after the holiday period we would anticipate some fall-back in rates before carriers turn their attention in the longer term to the autumn peak.

Please contact your local sales or operational contact if you wish to further discuss the above, or have any specific questions on current or future shipments.