Drewry: All Is Not Quiet in the East Med

A recent spike in Asia to Mediterranean spot rates shouldn’t be mistaken as a sign of permanent recovery of big markets in the Mediterranean as weakness in the East Med region and the spectre of big ships entering the trade will temper carriers’ prospects in 2017, according to analysts at Drewry.

The westbound Asia to Mediterranean/North Africa container trade is growing, but it has been something of a mixed bag when looking at the fortunes of the two distinct regions, Drewry said. There has been steady growth in the more mature West Med economies while the North African and East Med regions are showing losses, most notably in the Egyptian and Turkish trades, mainly due to political upheaval and terrorist attacks in the two countries.

After 11 months of 2016, the year-to-date growth for the total westbound trade stood at 2.5%, which is also Drewry’s expectation for the full year and a big improvement on the 1% decline witnessed in 2015. If Drewry’s 2016 forecast is correct, last year will have been the first time the trade has carried over 5 million TEU.

The driver of the trade growth has been the West Med market, which was up by 4.4% in the first 11 months of 2016. This was achieved on the back of solid volume growth to the key economies of Italy, Spain and France.

Thanks to a slight year-on-year improvement in November, container growth in the Asia to East Med/Black Sea trade managed to creep into positive territory with year-to-date volumes up by a barely perceptible 0.7%. The source of the region’s malaise is economic and political strife in two of the three largest economies, Egypta and Turkey, according to Drewry.

Drewry’s growth forecast for 2017 is for a modest increase of 2.1% in Asia to Mediterranean/North Africa imports, slightly below that estimated for 2016. The European Central Bank’s decision to extend its quantitative easing programme until the end of 2017 is something that will weaken the euro against the dollar and in turn suppress import growth, while no quick rebound is foreseen in the Turkish and Egyptian trade lanes, or in the troubled Syrian and Libyan markets, Drewry said.

Sluggish demand growth is doing little to rectify the almost chronic oversupply of slots in this trade, Drewry said. Ship utilisation on the westbound leg has been hovering around the 80% mark since March, a situation that didn’t change after the suspension of the bankrupt Hanjin Shipping’s MD3 pendulum service as stranded bookings were quickly absorbed elsewhere.

The temporary merging at the end of October of Ocean Three’s Adriatic and Black Sea loops as part of its Winter Programme only maintained the utilisation trend, but ironically the effective capacity cuts were applied in the two niche markets that had been performing relatively well in 2016.

At first sight, the new alliance schedules for next year do nothing to address this issue of over-tonnaging. Admittedly, the number of direct services would appear to be reducing from twelve to eleven, but until actual vessels are put against these products there is no way of assessing to what extent the current supply-demand imbalance will be alleviated.

Drewry expects there will be further cascading of large ships from the North Europe trade to come. Low headhaul volumes do not warrant the deployment of 16,000 TEU ships on the trade, but deliveries of 19,000 TEU ships on Asia-North Europe leave carriers with few options, and therefore Drewry expects more 16,000 TEU ships to be cascaded in 2017.

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