Carriers slow to remove capacity ahead of Chinese New Year

The manufacturing slowdown that occurs over Chinese New Year means far fewer exports. Carriers will need to manage capacity to reflect reduced demand.

News ID: 80459

Date: 10 December 2019 - 09:53

WITH this year’s early Chinese New Year just six weeks away, container lines have begun reducing capacity to account for the slowdown in demand in the weeks surrounding the holiday period.

To date, however, announced capacity reduction has been relatively small, leading to fears that further blank sailings will need to be introduced with short notice, according to analysts at Sea-Intelligence.

“If the relative capacity reduction of 2019 is to be matched, carriers need to blank an additional 11-23 sailings on the transpacific and six to nine sailings on the Asia-Europe trade,” Sea-Intelligence said. “Given the potential scale of these reductions, we might end up in a similar situation to 2019, where 45 blank sailings were announced three weeks before Chinese New Year.”

Chinese New Year, which marks the start of holidays across most of Asia, and especially so in China, will fall on January 25 in 2020, the earliest in the year it has fallen since 2012.

With this holiday period strongly impacting manufacturing output, container shipping demand to and from Asia decreases substantially, forcing shipping lines to cull supply to meet their expectation of demand, by blanking sailings.

On the Asia-North America west coast trade lane, Chinese New Year capacity reductions have not followed a distinctive pattern, with capacity reductions spread over a three-week period in both 2016 and 2017, while in 2018 and 2019, the brunt of the Chinese New Year reductions fell in the two weeks following Chinese New year.

So far, the majority of the capacity reductions planned for 2020 are for first and third week following the new year, which also means that currently, the offered capacity in week 2 is to be the highest for that week across the entire analysed period.

“Capacity offered in the week before Chinese New Year in 2020 is also slated to be the highest for that week across the analysed period,” Sea-Intelligence said. “This will change as more capacity cuts are potentially announced as we move closer to Chinese New Year.”

In 2019, 29 sailings were blanked in the week three-week period. In 2020, eight blank sailings have so far been announced, equating to 62,000 teu of blanked capacity, or 6.9% of the total capacity for the three-week period in 2020.

“If carriers wish to blank capacity in 2020 in line with 2019, then an additional 180,400 teu needs to be blanked, which, with an average vessel size of 8,100 teu on the trade lane, means the blanking of an additional 22.3 average-sized sailings,” Sea-Intelligence said.

“On the other hand, if the relative capacity reductions of the past three years are a better guide for how much capacity needs to be blanked, then the carriers need to blank an additional 137,000 teu of capacity, which equals to an additional 16.9 average-sized sailings.”

To date, only 19 blank sailings are slated for Chinese New Year 2020 across the combined Asia-Europe and transpacific trades, which is considerably lower than the 57 and 67 sailings that were blanked in 2018 and 2019, respectively.

In 2019, however, until four weeks before Chinese New Year, only 20 blank sailings had been scheduled, with an additional 45 blank sailings announced only three weeks before the holiday.

“Given the seasonality of the previous years and the overall weak demand growth environment, capacity reductions so far for the 2020 Chinese New Year are significantly muted, and shippers should expect carriers to announce a considerable number of blank sailings in the coming weeks,” Sea-Intelligence said.

“However, we hope that the industry is not put in a similar situation to 2019, where such large scale disruptions are announced at such very short notice.