Europe's container shipping trade suffers new downturn in demand

EUROPE's manufacturing activity has fallen to its lowest level in seven years, suggesting that tough times lie ahead for the container shipping industry that is struggling to cope with excess capacity

11 October 2019 - 19:00

EUROPE's manufacturing activity has fallen to its lowest level in seven years, suggesting that tough times lie ahead for the container shipping industry that is struggling to cope with excess capacity.

According to the Shanghai Shipping Exchange's Shanghai Containerised Freight Index (SCFI), spot rates on Asia-North Europe trade lane fell to US$593 per TEU in the last week of September, just before China's Golden Week holidays and its lowest level in 12 months. The weekly rate movements tracked by the JOC Shipping & Logistics Pricing Hub show the rate is down 20 per cent on the same week a year ago.

Container Trades Statistics (CTS) data for July showed volume rising 3.6 per cent year on year to 1.5 million TEU. That marked a slight increase over June, and the extra demand, combined with blanked sailings by shipping lines, saw rates rising sharply through July. However, the spot market dived in August, suggesting demand fell off against an oversupply of capacity, a report by JOC said.

CEO of Sea-Intelligence Maritime Consulting Alan Murphy wrote that without capacity reduction measures by shipping lines, the rate level could continue to fall.

Sea-Intelligence reports that capacity on the Asia-North Europe trade, driven largely by mega-ship deliveries that have no other home, will rise 5.5 per cent year on year to 3.55 million TEU.

This comes as the indicators show Europe battling through stiff economic headwinds. In the second quarter, the GDP growth rate of just 1.2 per cent year on year was the joint weakest quarter in five years.

According to the IHS Markit Eurozone Manufacturing PMI, manufacturing output, new orders and purchasing all dropped to levels not seen since 2012. Germany's manufacturing activity reached its lowest level since June 2009, while Austria, Spain, Italy and Ireland also recorded falling output during September.

Germany and the United Kingdom are both among China's top 10 trading partners, and declining new orders from European factories will also have an impact on volume out of Asia. Germany's auto manufacturing industry is particularly hard hit, and importers of vehicle parts and components are feeling the effects of the falling demand.

IHS Markit director Rob Dobson said the UK's manufacturing downturn continued in September, adding to signs that the sector may be slipping into recession. Output, new orders and employment all fell further as rising political, trade and economic uncertainties exacerbated concerns about Brexit.

'Some manufacturers noted increased inventory building activity in preparation for the forthcoming exit date, but the impact of such Brexit-related stock building was dwarfed by weakening demand for other customers, due in part to clients routing supply chains away from the UK,' Mr Dobson said.

Chartered Institute of Procurement & Supply director Duncan Brock said the UK's export orders in September dropped for the sixth consecutive month.

'As the Brexit October deadline came into view, the sector offered two opposing strategies to prepare for the UK's departure. Where some companies were burning through their levels of materials, others began building stocks up again, fearful of an imminent and abrupt rupture in their supply chains,' Mr Brock said adding that European clients have started to make concrete plans to move away from UK suppliers and to find business closer to home.

'Brexit, combined with a slowdown in the global economy, rising trade tensions and potential oil supply difficulties in the Middle East, means we're likely to see a chilling end to the last quarter,' Mr Brock said.


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