Global News Demand slowdown overshadows capacity cuts on Asia–Europe

The weakness on the Asia–Europe ocean trade is deepening, with carriers struggling to match capacity with declining demand and slow plummeting spot rate levels.

Aggressive capacity management by the carriers over the past three months is having little effect in stemming the rate collapse. Carriers have blanked 30 percent more capacity from September through November than during the same months last year, cancelling 1.18 million TEU, new data from Sea-Intelligence Maritime Analysis shows.

Asia to Europe volume in September, the latest data available, declined 23 percent year over year to 855,334 TEU, the sharpest monthly decline this year, according to Container Trades Statistics (CTS). North European import volume from Asia for the first nine months of 2022 was down 7.5 percent at 9.2 million TEU.

The rapidly softening demand has sent spot rates on the trade lane into freefall. Average spot rates from Asia to North Europe of $2,306 per TEU are now more than three times lower than during the same week last year and half the average long-term rate of $4,729 per TEU, according to rate benchmarking platform Xeneta.

The weakening market comes at a time when carriers are negotiating new contracts with Asia–Europe shippers, so it’s no surprise that importers are electing to move a greater percentage of their volume on the spot market.

“It makes sense to be in the spot market this time around,” Peter Sand, chief shipping analyst at Xeneta, told JOC.com. “I imagine spot rates will overshoot on the downside, with carriers unlikely to sell at long-term rates below their break-even cost level. At least for the time being.” Little appetite for contracts Shippers typically reserve 20 to 30 percent of their volume for the spot market to compensate for fluctuating demand, but with spot rates so far below long-term prices, there is little appetite to fix prices.

“Shippers are reserving more volume for spot instead of contracting for longer periods as everyone expects the market to implode even more than it is already,” the European logistics director for a global retailer told JOC.com Tuesday.

“Last year, rates were fixed at super-high levels,” the source added. “Some of the carriers also enforced tiered pricing with fixed weekly volume, even higher rates for excess volumes, and fairly ludicrous rates for guaranteed volumes. Contract terms being agreed now will not be a strict as last year in line with changing market powers.”

The ocean freight director for a global forwarder told JOC.com earlier in November that unless the short-term rates increase and close the gap with long term contracts, the spot market would continue to have the upper hand.

“But this can change any day and the picture will look different once again, because the market from Asia to Europe is extremely volatile,” he said.

Reflecting the reality of a slowing market, Maersk cut its outlook for global container demand growth for the full year from between 1 and minus 1 percent to minus 2 to minus 4 percent, while Ocean Network Express (ONE) CEO Jeremy Nixon expects container shipping volume to continue its decline through the first quarter of 2023, accompanied by falling spot rates as economic conditions weaken.

As Europe heads into recession and demand declines, importers are also having to deal with high inventory levels they are finding hard to clear, putting the brakes on orders from Asia.

“There is enough inventory with retailers,” said Johannes Schlingmeier, cofounder and CEO of visibility provider Container xChange. “What has happened now is that the cargo is on time again and hence you'll see a slowdown in new ordering as companies adjust to more efficient turnaround times in ocean freight delivery.”