Shippers and forwarders on the transatlantic trades have been warned to expect more blanked sailings – and possibly even cancelled services – unless there is an urgent reversal in the recent freight rate declines.
The trade appears caught in a classic pincer trap: healthy demand and strong rates led carriers to inject more capacity onto a trade that was performing better than the transpacific and Asia-Europe; but a recent decline in volumes – caused, in part, by inventory de-stocking across a wide range of verticals – has resulted in a sudden surge of overcapacity and the precipitous decline in rates.
Carriers have responded, but it is not yet enough, carriers and customers alike told listeners on the Journal of Commerce transatlantic trade webcast yesterday.
Meanwhile, senior Alphaliner analyst Stefan Verberckmoes noted that 2M partners MSC and Maersk had replaced 8,300 teu vessels on their TA2/NEUATL2 service with 4,750 teu ships, representing a 43% capacity reduction on that loop.
“only yesterday the partners announced that the 15 September departure from Bremerhaven on that service is to be blanked – so the downsizing so far isn’t enough, and it’s also a clear sign that carriers are reacting to reduced demand,” he added.
MSC’s senior VP and head of Europe-North America trade, Pasquale Formisano, said: “We are decreasing tonnage, but it’s not sufficient if it is just ourselves,” and added that rates were beginning to dip under break-even levels.
“If shipping companies cannot cover the cost of moving a container from A to B, then they will take any action not to go bankrupt, and there is going to be a lot of blank sailings and cancelled services,” he warned.
Markus Pannhauser, senior VP of ocean freight at DHL Global Forwarding, also noted that the transatlantic trade remained highly vulnerable to relatively small fluctuations in demand and supply.
“It’s a difficult trade,” he said. “It doesn’t help if a newcomer opens a service but doesn’t have any inland infrastructure to support it – you are disturbing the market rather than helping it.
“It’s a very sensitive trade – if one service disappears then rates will go through the roof,” he added.
Mr Pannhauser noted that demand had also been volatile recently. He explained: “There is stable cargo, such as automotive, chemicals and pharma, but cargo such as lumber, paper and some semi-finished products are down by 30%. There is a certain volatility to US demand patterns, but I think the cargo will come back, and if further capacity reductions also come I expect to see rates going up quite quickly.”
And despite suspicions among carriers that some customers may be enjoying the schadenfreude of seeing plummeting rates and lines scrambling for cargo, at one point, Capt Formisano claimed: “For 99% of our customers, their priority is to screw us”.
Lidl’s senior advisor of inland supply chain and logistics, Jochen Gutschmidt, however, claimed this was a misapprehension.
“We hate disruption, whether it’s blank sailings or the phasing-in and -out of ships, it clearly complicates our ability to conduct our business as we would like.
“Shippers want stability – it is not shippers’ priority to have low prices; that’s simply not the primary goal,” he added.