Capacity injection insufficient to meet demand: The Asian shipping market is facing challenges

L1/ Strong demand for vessels in the Asian export trade lanes is absorbing a lot of capacity from carriers, as the demand is too high, it is difficult for carriers to effectively manage these large volumes, longer voyages around Southern Africa have made it more difficult to manage capacity, and congestion at major ports (Singapore, etc.) has further affected shipping efficiency, according to Alphaliner, ocean carriers have received a lot of new capacity this year, totaling nearly 1.6 million TEUs (TEUs, 20-foot TEUs).

L2/ Despite the significant capacity additions, they have had little effect on addressing the supply-demand imbalance in the Asia-Europe and Transpacific routes. The supply-demand imbalance may be due to demand growing too fast and capacity increases not keeping pace with demand growth, and despite record new ship deliveries and a lot of nominal capacity increases, the actual effective demand still exceeds these capacities. Capacity shortages are expected to continue into the peak season from August to October, which is typically the peak period for freight and further increases in demand.

L3/ Blank (cancelled sailings) data shows that carriers plan to increase capacity on the transpacific and Asia-Europe trades in the coming weeks, and whether they can increase capacity and ease market pressures depends on whether ports can handle these additional vessels, port congestion is a key factor, and if port congestion is severe, the planned capacity increase may not be realized.

L4/ A low vessel idle rate indicates that carriers are utilizing all available capacity as much as possible, which means that capacity is currently very tight and carriers have no spare vessels to idle. In the first half of 2024, only 0.7% of the global container shipping fleet will be idle commercial tonnage. This low idle rate, which was last seen during the pandemic, indicates that the current capacity utilisation is very high, with only 77 vessels (totalling 217,038 TEUs) not engaged in revenue-generating activities in the last two weeks.

L5/ Not only is the capacity of ships under pressure, but the supply and demand of containers are also in question, with the price of 40-foot cubes (high cubes) in China rising sharply. According to Container xChange, the price of a 40-foot container unit (FEU) has risen from $1,700 in April to $3,600 in June over the past two months, an increase of 112%.

L6/ Container shortages have worsened in many parts of Asia, with all new containers fully booked by August, and container equipment shortages have become more acute in many parts of Asia, with new containers being booked by August. Despite the improvement in congestion at Asian ports, waiting times for vessels remain long due to the large increase in cargo throughput that terminals need to handle. Malaysia's Tanjung Pelepas Port has seen a 20 per cent increase in container throughput so far this year, partly due to the diversion of some vessels from Singapore. Port Klang North Port Terminal's container throughput in May increased by 26% year-on-year to 335,361 TEUs, mainly due to some carriers choosing to call here on a temporary basis.

Importers on the L7/Asia-Europe trade are scrambling for cargo, disruptions in the Red Sea region, congestion at major Asian ports, and labor disputes that could occur on the East Coast and Gulf coasts of the United States this fall are contributing factors. These factors have led importers on the Asia-Europe route to start moving (booking) earlier than usual. Parash Jain, HSBC's global head of transport and logistics research, noted in a note this week that shippers tend to load ahead of Christmas in order to avoid disruptions, potential tariffs and rising freight rates, and as a result, he believes demand momentum is likely to continue in the third quarter.

L8/ While container rates and freight rates are still rising sharply, there has been a decline in transaction volumes, and this decline is due to buyers becoming more cautious and reluctant to rush to increase purchases, European imports in particular appear to be very strong compared to historical seasonal patterns, and due to supply chain disruptions caused by the diversion through the Cape of Good Hope, some volumes in the normal peak season in Q3 have been shipped ahead of schedule, and the second half of 2023 is relatively strong, which is expected to result in a lower growth rate in the second half of 2024 than in the first half, The peak period of first-leg trade (the main transport from the exporting country to the importing country) will be weaker than normal.

L9/ Spot rates from Asia to Northern Europe continue to rise and show no signs of slowing down, with current spot rates approaching the all-time high of $17,000 per 40-foot container unit (FEU) reached in late 2021 and early 2022. The Peak Season Surcharge (PSS) is a charge that is charged in addition to the spot rate and currently increases by up to $2,000 per FEU. In the current tight market, spot rates and peak season surcharges are likely to continue to rise.

L10/ The average rate on the Asia-North Europe route has risen by 13% in a row last week and now reaches an average rate of $8,250 per 40-foot container unit (FEU), which is more than six times the price of the same period last year, showing significant growth, and on June 25, the Asia-Mediterranean route was $7,900 per FEU, a 9% increase from last week and three times the price of the same period last year.

L11/ MSC announced that it will raise various types of freight rates on July 1, and if the increase is successful, the spot rate from Asia to Northern Europe will be close to $10,000 per 40ft container unit (FEU) and the rate from Asia to the Mediterranean will exceed $9,000. The Transpacific trade will also implement a General Rate Increase (GRI) on July 1st, ranging from $1,000 to $2,000 per FEU. CMA CGM will implement a $2,000 GRI per FEU and a Peak Season Surcharge (PSS) of $2,400 per FEU.

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