As the Asia-East Coast South America spot rates are starting to level off after a huge spike induced by big capacity cuts, container carriers will need to squeeze more capacity out of the system if they want to maintain high load factors and prices, according to shipping consultancy Drewry.
Carriers undertook a major downsizing in capacity earlier this year in response to the heavily shrinking trade. Even as bigger ships of 8,000 TEU have joined the trade the monthly southbound slot capacity in September was 38% lower than in the same month last year, while the number of carriers operating ships has been trimmed from 13 to 10.
Spot market rates rebounded strongly following carriers’ radical capacity cuts that helped southbound ship utilisation get into the 90% and above range.
Drewry estimates that ECSA inbound ships have been close to full since May, leading to a doubling of freight rates to levels not seen in two years.
Drewry’s Container Freight Rate Insight reported that Shanghai to Santos spot rates increased by 104% in May against April to reach USD 3,040 per 40ft container, before rising again in June to USD 3,690/40ft.
However, despite continued strong loadings in July and August rates have returned back to where they were in May, suggesting that competition among the remaining carriers for business has been fierce with shippers being lured by discounted prices.
“No other container trade has suffered anywhere near as harshly as the Asia to East Coast South America trade has this year. Following a 9% decline in volumes last year, the trade is on course to see that deficit possibly even double this year,” Drewry said.
Drewry added that, according to Datamar statistics, Asia to ECSA traffic has fallen in 13 consecutive months with August’s year-on-year slump of -26% only the third worst of its kind in 2016. After eight months, trade on this route was down by 24% and showing little sign of decelerating.