Drewry: Alliance Reshuffle Comes amid Weaker Demand

The new alliance set-up coincides with a weak start to the year for headhaul volumes from Asia to West Coast North America – boding ill for Beneficial Cargo Owner (BCO) contracts, shipping consultancy Drewry informed.

According to Piers data, covering US port traffic only, the first two months of 2017 saw volumes from Asia to USWC decline by 9%, against a rise of 4% in USEC and 32% in USGC trades.

This follows full-year 2016 growth from Asia to WCNA (including Canada and Mexico) of 4.6%, giving a total of 13.2 million TEU. The fourth-quarter 2016 was particularly strong with traffic levels surging by 9.2% year-on-year.

However, growth was somewhat inflated in that period as there was a sizeable portion of cargo moving in October that should have been carried under a Hanjin Bill of Lading in September, while December’s numbers were also helped by the earlier incidence of Chinese New Year in 2017 than in 2016.

Notwithstanding the poor start to 2017 Drewry currently sees eastbound Asia-WCNA volumes tracking lower than they did in 2016.

Asia to WCNA trade, along with six other routes, is about to undergo some serious surgery as a consequence of the new alliance structure that will come into effect on April 1. Monthly slots available on the Asia-WCNA route will likely increase by about 4% on the headhaul and by 2% on the backhaul when comparing April 2017 with the same month in 2016.

“The extra capacity and new entrant will add downwards pressure on spot rates and make obtaining higher BCO contracts in an already over-crowded market that much more difficult,” Drewry said.

While the alliance reorganisation will have a sizeable overall impact on capacity, there will still be a number of independent and jointly run services that will work outside of the new three groupings.

“With reasonably buoyant headhaul flows during January, spot market rates duly rose, but worryingly for carriers pinning their hopes on much higher BCO contracts, a similar trend as last year has developed in recent weeks which could signal that fairly turbulent waters lie ahead,” Drewry said.

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