How Shipping Lines Sustain Rates Despite Surging Capacity

Monday, 11 September 2023

    Global freight rates and capacity availability are key indicators of economic activity, with sea transport accounting for around 90% of global trade.
    Despite assumptions that a surge in capacity would lower rates and create overcapacity, shipping lines are maintaining rates by possibly collaborating to manage capacity.
    An uptick in demand, particularly in Europe and Asia, may provide an opportunity for these lines to reverse previous price drops, despite the ongoing trend of decreasing shipping rates.

Via Metal Miner

In recent years, market analysts, considerably widened the parameters they track to assess growth in countries, regions, and globally as far as container shipping goes. In this case, “analysts” includes more than just economists as there is currently a wider community conducting such evaluations.  

Unlike the past, these individuals now track all kinds of consumer data that provide real-time indications of economic activity. Examples include things like credit card payments, train miles traveled, and power consumption.

One often-overlooked indicator that we like is global freight rates and capacity availability. Indeed, sea transport accounts for around 90% of global trade and a significant proportion of trade in certain regions.

Therefore, when we see headlines like “Shipping Lines Add Nearly 300,000 Tons Equivalent Units (TEUs) in June” on Seatrade Maritime, the immediate assumption is that rates will fall and overcapacity will occur in the face of a looming recession, right?

MORE NEWS : MSC Partners with Valencia to Expand Med’s Busiest Container Port

Well, maybe not.
Container Shipping Trends Show Uptick in Demand

According to Container Trade Statistics, while global demand was broadly flat from March to May, total imports in supposedly “sick man” Europe were up 4%. Meanwhile, Asia-Europe trade was up 8%.

From a macro perspective, the story is neither all positive or all negative. For instance, U.S. imports fell 15%, continuing a long-running decline since the fall. This suggests that activity in Europe and Asia is holding up better than what the media often reports.

The shipping lines certainly believe that this trend will continue. They even announced rate increases for their Asia-Europe services for the second half of the year. Moreover, they are actively restricting capacity to North America to support rates.

Meanwhile, shipping rates have been on a downward trend for the last nine months. However, the addition of new capacity should not automatically lead us to assume that rates will continue to fall through the end of the year.

Shipping lines learned during the pandemic to cooperate and, dare we suggest, collude to manage capacity and hence support rates. Therefore, one could see this uptick in demand as an opportunity to reverse previous price drops in the second half of the year.

Source : oilprice.com