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November 12 2018

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November 12 2018 | The Journal of Commerce 29 Asia-Europe Carriers and Ports Cover Story Special Report OCEAN CARRIERS IN the Asia-Europe trade will be searching in the year ahead for ways to balance industry fundamentals that are pulling in opposite directions — capacity continues to outstrip demand while container volume from Asia de- clines, and freight rates are falling as bunker fuel prices rise sharply. It is not a recipe for profitability for carriers hoping to add a second consecutive year in the black after six years of losses, and will not be helped by escalating US trade tensions, declining business confidence across much of Europe, and supply chain uncertainty over Britain's March 2019 exit from the European Union. Economic indicators, such as the IHS Markit Eurozone Manufac- turing PMI, (purchasing managers' index), recorded a broad-based slow- down in the September survey. "The slowdown can be linked to sluggish demand and increased risk aversion among customers, often linked to worries about trade wars and tariffs, but also ascribed to rising po- litical uncertainty and higher prices," said Chris Williamson, chief business economist at IHS Markit, parent com- pany of The Journal of Commerce. "Forward-looking survey indica- tors suggest the worst is yet to come: fuel prices through August were up 43.7 percent from June 2017 to $444 per metric ton ($404 per ton) across Rotterdam, New York-New Jersey, and Shanghai. With no trade tariffs spurring demand in the Asia-Europe trade, ocean carriers reacted to the capac- ity oversupply by canceling sailings and cutting rates, Freightos said in a market update. "First, they cut services, but in an about-turn, three of the largest carriers recently cut their FAK [freight all kinds] rate. That has sent prices fall- ing. Over the past four weeks, they've dropped 32 percent," Freightos noted. "This dramatic drop in China-North Europe, coupled with a corresponding 12 percent drop in China-Mediter- ranean prices, has dragged global container index prices down 8 percent over the past five weeks." In a bid to balance supply with demand, carriers have withdrawn capacity from the trade. The largest single capacity withdrawal was by 2M Alliance members Maersk Line and Mediterranean Shipping Co., which pulled out a loop of 11 me- ga-ships of 18,000-TEU to 20,600- TEU from the Asia-Europe trade in late September. It is a significant capacity cut Optimism about the year ahead is close to a three-year low, inflows of new orders and input buying are the weakest for over two years, and backlogs of work are dropping for the first time in over three years." Third-quarter financial results will be released soon, starting with Maersk on Nov. 14, and carriers are expected to see an improvement on the first half that left most in the red. But global shipping lines can only hope the strength of the trans-Pacific trade will be enough to improve their ailing balance sheets in 2018, because the third quarter and its traditional peak season has been a tale of two trades. While trans-Pacific beneficial cargo owners (BCOs) are seeing freight rates at five-year highs and are still strug- gling to secure space even past the traditional peak-season period, both spot rates and volume on Asia-Eu- rope routes have been heading in the opposite direction. The spot rate has fallen every week since the mid-peak period in August, according to the Shanghai Shipping Exchange's SCFI where weekly rate movements are tracked at the JOC Shipping & Logistics Pricing Hub. While rates fell, average bunker Supply demand Asia-Europe container shipping balance eludes carriers seeking strategy for profitability By Greg Knowler

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