Capacity reductions set to stay

News ID: 80492

Date: 04 April 2020 - 09:15

By removing capacity from the container shipping market, carriers have managed to maintain freight rates so far. Further blankings are likely on non-mainlane trades, however, New wave of cuts likely as China export demand falls.

TERMINALS IN SOUTH AFRICA ARE ONLY OPERATING AT 50% OF THEIR CAPACITY, INDICATING FURTHER BLANKING WILL BE REQUIRED.

BLANKED sailings on the back of lower demand are expected to continue beyond April and spread beyond the mainlane trades.

“Until the beginning of last week it looked like capacity cuts would level out, but now we see a new wave of cuts announced,” TIM Consult analyst Clemens Schapeler said in a webinar presentation.

“For China, it looks like an amount of the capacity reduction will be maintained for this month or even longer. As a result of the slowdown there will not be as much demand for Chinese goods in the rest of the world.”

Blank sailing were also emerging on a more limited scale on the transatlantic trade, and on Indian and Southeast Asia services, he added.

“The decision of India and South Africa to go into a very strict lockdown, has already caused some blankings and will probably cause more,” Mr Schapeler said.  “This is also affecting feeder levels. Previous restrictions for the Mediterranean are also having an effect.”

South Africa was the first country to have included ports in its lockdown, he said.

“South African ports are mostly operating at about 50% of capacity and are also giving priority to medical equipment and food, which might further disrupt handling there.”

The extent of the fall in demand was underlined by the Shanghai Shipping Exchange, which said shutdown measures were having a significant impact on the operation of business and have “weakened the recovering trend of shipping demand”.

In its commentary for the week ended March 27, the SSE noted that slot utilisation ex-Shanghai was only 85%, which helped keep pressure on spot freight rates.

Rates on the Asia-northern Europe and Asia-Mediterranean trade were both down just under 2% this week.

The heavy reduction in capacity on the Asia-North America trade, however, helped rates to the US west coast jump 10% this week after falling by over 2% last week.

Mr Schapeler said that even if economic activity were to resume to a certain extent after Easter, as some expect it to do, shippers would still find it hard to find export slots ex-Europe, as they would still be faced with the backhaul effect of the blanked sailings.