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Drewry: Yo-Yoing of Spot Rates to Continue in 2015

Drewry: Yo-Yoing of Spot Rates to Continue in 2015
The westbound trade continues to show consistent growth but it is far from uniform throughout the Mediterranean region, according to UK shipping consultant Drewry.

November’s 5.0% year-on-year increase means that in the last 20 months the Asia-Mediterranean market has only once experienced a year-on-year monthly fall.

Currently, it is the revival of the developed West Mediterranean markets (including North Africa) that is powering the growth of the westbound trade.

Drewry’s November data for this sector marked an 8.3% upturn in cargo movements compared to a year ago, whereas Asian goods bound for the East Mediterranean grew by a more subdued 2.1%.

During the first ten months of 2014, imports into Spain climbed by 14% with France and Italy recording gains of 13% and 10% respectively. The overall growth level for the West Mediterranean market has in recent months been distorted by the collapse of traffic moving into Libya.

Asian exports entering Libya between July and October fell by almost 55% as the country slid again into political chaos.

In the East Mediterranean arena, the growth of Turkish imports has slowed markedly in recent months, due in part to a weakening lira.

Between July and October, Asian products landed in the country advanced by only 5.4% – and in October volumes simply flatlined – whereas a year earlier growth was running at 27%.

In the same period, Egypt’s imports of Far Eastern goods have raced ahead by 25%; a calmer political environment and an injection of funds from the Gulf States to stabilise the country’s finances have boosted consumer confidence.

The 12-month rolling average growth rate of Asia-Mediterranean westbound volumes cooled to 6.6% in November, having reached a peak of 9.3% in May, and represents the lowest pace of growth since October 2013.

According to Drewry, 2015 will be a challenging year for the trade in a variety of ways.

“The main protagonists in the market – Maersk, MSC and CMA CGM – will be anxious to ensure a soft landing of their respective new alliance services during the first quarter. There is a new entrant on the route, namely Hamburg Sud, taking slots from UASC, although the German carrier will be very much a peripheral player, focusing mainly on the established West Mediterranean markets,” Drewry estimates.
Furthermore, the conflicts in Syria, Ukraine and Libya will continue to constrict the flow of imports to those countries. The ailing Russian economy – riven by a weakened rouble, a sharp fall in oil prices and western sanctions – will mean fewer Asian boxes being landed at Novorossiysk, and neighbouring countries in the Black Sea may also suffer.

As the West’s relations with Iran continue to thaw, less cargo will be diverted via Turkey or the Black Sea eastern seaboard ports, Drewry said. The amount of West African transhipment cargo carried on Asia-Mediterranean loaders may reduce as carriers start to look at alternative ways of serving the sub-Saharan market, including working cargo over new hubs such as Lome.

While Spain and, to a lesser extent Italy, seem set to continue along the road of economic recovery, the renewed internal political turmoil in Greece threatens to bring the country back to the precipice again.

In December, the eurozone officially tipped into deflation, which, as Drewry explains,  may prove to be a double-edged sword.

“On the one hand, cheaper prices – especially fuel cost savings – may prompt Europeans to spend more on imported consumer goods. Equally, there is the argument that households will defer purchasing certain goods in the expectation that prices have further to fall,” the shipping consultant added.
Monthly capacity was shaved back to some 415,000 teu in both October and November through the mechanism of blanked weekly sailings, and across the whole of the fourth quarter slots provided were down 3.4% against what was offered in the last three months of 2013. Compared to the last quarter of 2012, the compression this year amounted to 4.7%, Drewry’s data shows.

“This diligent capacity management on the part of the carriers – resulting in a vessel utilisation factor of still some 90% during the last quarter of 2014 – may be saving them costs but it is having little effect in bolstering their revenues,” the shipping consultant said.
The 15 December rate increase declared by the operators is looking to be a re-run of the 1 November price hike. On both occasions spot rates were booted from around USD 1,700 to 2,900, but from day one the increase began to unravel. By the second week of December, the November increase had completely been frittered away.

During the first week of January spot rates were starting to drift once more below USD2,400.

Despite the relatively healthy vessel load factors during 2014 and the satisfactory growth in headhaul demand, the current spot rate level is still almost USD 1,000 below where it started the year.

“Some BCO contract accounts have taken a small increase (USD 100 per 40ft) for their 2015 business and spot rates should rally at the end of January when the pre-Chinese New Year cargo surge starts in earnest. However, the yo-yoing of spot rates will continue throughout 2015,” Drewry concluded.

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