The Asia-Europe trade outlook going into 2016 has become increasingly uncertain because of the big unknown, namely when will the Chinese economy, the key driver of the head-haul westbound leg, bottom out.
Highlighting the deteriorating outlook was the Chinese central bank's decision to trim benchmark interest rates for the sixth time in 12 months in October in a bid to support an economy on track to grow at its slowest pace in 25 years.
Questions also exist about whether the eurozone can maintain its snail's pace recovery - and boost its imports from China - going into 2016.
Carriers simply don't know what's around the corner. "What we think is happening is the renminbi has appreciated a lot versus the euro," Maersk's Group CEO Nil Andersen told CNBC recently.
"First, we've seen a reduction in stocks and then disappointing peak-season trade from Asia to Europe. Currency and competitiveness are surely playing a role. We need to understand the underlying conditions better."
The China factor is impacting the entire industry. Hapag-Lloyd cut its initial public offering from US$500 million to $300 million, trimmed the offer price and delayed its stock exchange debut in response to market volatility linked largely to China's declining exports and Volkswagen's emissions scandal, the IHS Media reported.
Hong Kong-based OOCL's Asia-Europe revenue slumped 32.3 per cent in the third quarter, outpacing an 11.5 per cent decline in traffic, in sharp contrast to its trans-Pacific operation, where cargo volume grew 9.5 per cent year-over-year while revenue dipped just 0.2 per cent year over year.
Rotterdam's container traffic edged up just 1 percent in the first nine months of this year because of lower Chinese exports to the eurozone and sales to the deteriorating Russian economy, even as its total throughput rose a respectable 5.4 per cent on higher imports of cheaper crude oil.
Some companies have managed to ride out the China downturn. Switzerland-based global forwarder Kuehne + Nagel, for example, credited a 9 per cent increase in third-quarter operating profit in part to a switch to the US containerised import trades from the troubled Asia-Europe route, where it has turned away low-margin, money-losing business.
And the Port of Antwerp grew its Asian traffic by 6.2 per cent in the third quarter from a year earlier - "which is all the more remarkable in view of the declining volumes on the trading routes to and from the Far East," it said.
Carriers have cancelled - or "blanked," in industry terms - sailings to North Europe and the Mediterranean through the beginning of 2016 to soak up surplus capacity and prop up sagging freight rates. The declining cargo volumes in recent months coincide with the scheduled addition of 36 new vessels of 18,000 to 20,000 TEU on the route.
Traffic on the head-haul westbound leg will grow 8.1 per cent in 2016 to approximately 16 million TEU after an expected 3.6 per cent decline this year, according to JOC Senior Economist Mario Moreno. Volume on the smaller eastbound leg out of Europe will stall at some 7 million TEU following a 0.8 per cent increase in 2015.
Carriers also got good news early this month, when general rate increases ranging from $750 to $1,200 per TEU boosted average rates on the Shanghai Containerized Freight Index's Asia-Europe product to just less than $1,000 per TEU, the highest level since early August. How long carriers will be able to sustain those levels is an open question, but their track record isn't strong. Past GRIs have fizzled quickly, in most cases the following week.
The deepening crisis and mounting losses in the Asia-Europe trade, however, could have a positive impact by hastening long-delayed consolidation of one of the most fragmented industries, in which the top three carriers - Maersk, Mediterranean Shipping Co. and CMA CGM - command 37 per cent of the global market. Fourth-ranked Evergreen trails at just 4.7 per cent.
Maersk has emerged as the unofficial voice of a publicity-shy industry, with CEO Soren Skou recently urging consolidation of the large group of carriers with 3 to 5 per cent market shares that are struggling to turn a profit.
Consolidation hasn't been an option in an industry largely controlled by families or governments, but there are signs of movement, particularly in Asia, due in part to the mounting losses and bleak outlook on the Far East-Europe run.
More immediately, carriers are bracing for a fight for market share. "Global growth is very disappointing, and if we knew what we know today, maybe some of the (investment) decisions we did three years ago, we wouldn't have done or they would have been different," Mr Skou told The Wall Street Journal in early October.
For now, all bets are off as carriers consider their options to survive the coming year in the world's largest - and most troubled - liner trade.The order was passed in response to a complaint filed by Express Industry Council of India, a body representing companies including Blue Dart, Fedex and DHL, among others.It was alleged that the five airlines indulged in anti-competitive practices. The grouping said the latest CCI order would deter entities from indulging in unfair business practices.
WORLD SHIPPING
18 November 2015 - 22:27
What's going to happen to Asia-Europe trade in 2016? No one knows!
The Asia-Europe trade outlook going into 2016 has become increasingly uncertain because of the big unknown, namely when will the Chinese economy, the key driver of the head-haul westbound leg, bottom out.
WORLD SHIPPING
18 November 2015 - 22:27
What's going to happen to Asia-Europe trade in 2016? No one knows!
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