Market Rates and Trend Forecast - Europe

June 3rd, 2019

Ocean Freight

Ocean freight rates for the first half of June increased by approximately US$125/FEU to the United Kingdom. Laconic speculates that the rate increase is caused by European import growth in the first quarter. However, an increase in Asia – Europe capacity along with the possibility of weakening economic activity may bring rates lower later on in the year.

European Import Growth

Recent data shows that import container volume from Asian ports grew 7% in the first quarter over the same period last year. The Port of Rotterdam reported a 7.3% increase in first quarter throughput handling over 250,000 TEUs and the Port of Antwerp stated that they had “the strongest month of March ever”. This level of growth may have contributed to the rise in ocean freight rates as April statistics are not yet available until early June.

Asia – Europe Capacity

Although European imports had a strong start to the year, Laconic believes that a new Asia-Europe service and mega-ship deliveries may lower ocean freight rates as supply outpaces demand against weakening economic prospects. The Ocean Alliance consisting of CMA CGM, Cosco Group, OOCL, and Evergreen began its new Asia – Europe service in May adding 14,400 TEUs in capacity to the trade lane in anticipation of back-to-school season which transitions into the peak season around August. While demand is forecasted to grow by 2-3% in June, Alphaliner predicts that average weekly capacity on the Asia-Europe trade will be 7% higher.

Economic Uncertainties

Despite being off to a good start, Hapag Lloyd’s CEO said that he was “cautiously optimistic” in 2019. With trade tensions escalating globally, there is reason to be cautious especially when the European Union and Japan are set to begin trade negotiations with the U.S. in the upcoming months. The manufacturing sector also reported a decline in output for a fourth consecutive month led by a drop in exports. However, should economic conditions improve that leads to a surge in demand, freight rates could also spike due to the International Maritime Organization’s (IMO) low sulfur mandate that is set to be effective on Jan 1st, 2020 which is likely to drive up bunker surcharges.

Low Sulfur Bunker Adjustment Formula

There have been confusions pertaining to the actual cost of the IMO’s low sulfur mandate and how ocean carriers will revise their surcharge formulas. Although it seems like a good idea to have a standardized formula across the industry which creates transparency, the European Commission’s competition regulator has mentioned that it would be a “hardcore violation” of antitrust regulations if ocean carriers attempted to devise a uniform bunker adjustment factor surcharge. This leads to different calculations of the surcharge between different carriers but clarity is expected as the actual cost of low sulfur fuel is determined as we approach the Jan 1st, 2020 deadline.