03-05-2018

Far East-Europe Box Freight Rates: Mapping The Progress

Container freight rates on the key Far East-Europe route have seen significant volatility over recent years, and after improving in 2017 appear to have eased back again recently. Against this backdrop, comparing trends in cascading and deployed capacity on the trade lane with demand side developments can help to shine some light on the ongoing fluctuation in freight rates.

Charting A Course
The Far East-Europe sits at the top of the global trade route hierarchy, and is where most of the new very large boxships are initially deployed upon delivery. Freight rates on the route remain volatile, with continued ‘cascading’ of capacity by operators fundamental to balancing the impact of ongoing deliveries of ‘mega’ boxships and trends in box volume growth.

Following a relatively healthy freight market environment on the Far East-Europe route in 2014, freight rates fell significantly in 2015, to average just $724/TEU according to the Shanghai Containerized Freight Index (SCFI). Weak European import demand, combined with inventory destocking in the region and a significant fall in imports into Russia (symptomatic of weak oil prices), saw container trade on the peak leg Far East-Europe route decline 3% in 2015, whilst record boxship deliveries contributed to a 5% increase in the level of boxship capacity deployed on the trade lane. Capacity management efforts by operators took hold into 2016, (aided by the collapse of Hanjin), and alongside a return to positive volume growth in 2016, freight rates started to improve into the second half of the year.

Elevation Lines
Moving into 2017, Far East-Europe trade growth picked up further to 4%, helping to support further freight rate gains, with spot rates rising 27% to average $876/TEU. However, the level of deployed capacity rose steadily over the course of the year, with continued deliveries of ‘mega’ boxships leading to an estimated 11% increase in the level of running capacity deployed on the route in the full year. This began to erode some of 2017’s earlier freight rate gains, with rates easing 15% q-o-q in Q4 to $746/TEU.

Tricky Territory
After an initially more positive start to 2018, Far East-Europe freight rates have eased back again recently, with spot rates falling 19% m-o-m in March to average $739/TEU, and softening further into April so far. Ongoing deliveries of ‘mega’ boxships in early 2018 have contributed to continued difficulties for operators in managing capacity, with running capacity at start April 2018 still 10% higher than at this time last year (faster than volume growth although demand indicators have been volatile recently).

A Matter Of Degrees
So, after freight rates on the Far East-Europe route improved in 2017, it has proved a struggle to maintain these gains recently, and operators will need to continue to focus on actively managing capacity to protect the freight rate environment. While factors on both the supply and demand side have shaped freight rate trends over recent years, it seems as though it may be the supply side that is leading the way at present.

Source: Clarkson Research Services Limited

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