Market Rates and Trend Forecast - Europe

August 1st, 2019

Ocean Freight

Ocean freight rates for the first half of August increased by US$150 to US$200/FEU to the United Kingdom compared to rates in the second half of July. Void sailings are continuously being utilized by carriers to maintain spot rates which signals weak outlook. APL has also appointed a new Chief Executive Officer and will be withdrawing from the Asia-Europe trade altogether.

August Void Sailings

Announced blank sailings in July and August will remove approximately 130,000 TEUs from the Asia-Europe trade during the traditional peak season which implies market softness. The latest August void sailing announcement comes from the Ocean Alliance that will be departing from China on August 15th that operate vessels between 16,000 and 21,000 TEUs on this trade route. The Ocean Alliance will have cancelled 5 sailings in the July and August period while THE Alliance will have had 4. In contrast, the third alliance (2M, operated by Maersk Line and MSC) has no plans to cancel any sailings in August.

While cancelled sailings indicate market weakness and low demand while upholding freight rates, the more unsettling concern lies with container rollovers. Void sailings are typically announced ahead of time which provides time for shippers and importers to make adjustments to plans. However, cargo rollover occurs without prior notice and causes a one-week delay. This makes it particularly hard to manage since market consolidation over the years has left the industry with only three alliances which gives them much leverage in controlling rates and capacity.

APL’s Asia-Europe Trade Withdrawal

Singapore based APL has replaced their CEO with Stephane Courquin which will be their third since being acquired by CMA CGM in 2016. His goal is to focus on the trans-Pacific and intra-Asia trades while withdrawing from the Asia-Europe trade by the fourth quarter of this year. With APL’s departure from the trade lane, it may help align capacity with demand. APL is known for its Eagle GO service that charges a premium fee in order to secure guaranteed service.

Transatlantic Trade Tensions

Brewing under the shadows of the U.S./China trade war is one between the European Union and U.S.. The EU revealed last week that they would impose US$39 billion of retaliatory tariffs if the U.S. proceeds to impose duties on EU cars and auto parts. This potential escalation is significant because the EU’s automotive export is nearly 10 times larger than steel and aluminum exports combined. As we witnessed the impact that the U.S./China trade war had on shipping on the transpacific trade, effects such as frontloading, premiums, overbookings and cargo rollovers can quickly be mirrored on the transatlantic. Could it be possible that the U.K. would be spared from U.S. tariffs after Brexit?