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July 6 2020

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14 The Journal of Commerce | July 6 2020 International Maritime SPOT CONTAINER FREIGHT rates have soared above year-over-year levels through the second quarter despite the significant pandemic-related loss of volume, putting carriers on course for a $9 billion profit this year if those rates can be maintained. But the ability of carriers to lose 15 to 20 percent of container volumes while at the same time increasing rates has surprised a sector more used to witnessing rate wars in times of market distress. Tight, industry-wide manage - ment of capacity has enabled carriers not only to prevent a rate slide, but actually to push rates higher, signifi- cantly so on some east–west trades. The Shanghai Containerized Freight Index (SCFI) shows Asia–US West Coast rates at $2,669 per FEU, up 93 percent year over year in mid-June, while Asia–North Europe rates are 24 percent higher at $886 per TEU. That strength in the face of sharply declining volumes has led Alan Mur- phy, CEO of Sea-Intelligence Maritime Analysis, to radically revise the firm's carrier profit projection released in April, in which the worst-case scenario had lines heading for a $23 billion loss in 2020. The extent of April blank sailings, and their sustainability during the COVID-19 recession, materially changed the analyst's outlook. "If the carriers maintain the current rate levels, they stand to have a profit in excess of $9 billion in 2020," Murphy said in a Sunday Spotlight newsletter. "If they start a freight rate war in the second half of 2020, they stand to lose $7 billion, but for now, there is nothing indicating that we will see such a col - lapse — rather the opposite, in fact. The severity of the negative scenario is so material that this is likely a key compo- nent in the carriers' newfound ability to be very disciplined in their capacity management. Once again, it is likely that it is the positive scenario which will unfold." Another analyst surprised by the rate performance was Neil Glynn, managing director and head of Euro - pean transport equity research at Credit Suisse. He told JOC Uncharted in an interview June 17 that a lot of industry analysts expected freight rates in the second quarter to be con- siderably weaker. "That has been very surprising, but it is also a good validation of the action Capacity control Container lines could pull in $9 billion profit in 2020 By Greg Knowler Car trouble Lack of auto sector demand hinders trans-Atlantic trade By Greg Knowler Aug. 9, on routes from Northern Europe and the Mediterranean to North America, according to Sea- Intelligence Maritime Analysis. In its latest Sunday Spotlight newsletter, the analyst said the level of blank sailings announced by the carriers was equivalent to the with- drawal of about 12 to 14 percent of the capacity deployed on the trade. An executive from another major Europe-based carrier, who did not wish to be identified, told The Journal of Commerce that automotive parts typically comprise 10 to 12 percent of its volume on the trans-Atlantic "We adjusted our capacity to cut costs, and with demand reduced by around 20 percent, we have pulled 20 percent of our capacity out of the trans-Atlantic on routes to the US from both North Europe and the Mediterranean," he said. 'Little visibility' Automobile production is largely concentrated in Northern Europe, mainly in Germany, but that volume on the trans- Atlantic over this five-month period has regis - tered a year-over-year decline. But as the coronavirus pandemic disrupts the market, a closer look at the IHS Markit data reveals that demand for automobiles and spare parts crashed 40 percent, or more than 31,000 TEU, compared with the first five months of 2019. US machinery imports fell 20,000 TEU (14.3 percent) over the same period. "We have seen a significant reduc- tion in volumes…due to the plant shutdowns," Arne Maibohm and Hol- ger Oetjen, Atlantic trade executives for Hapag-Lloyd, said in a joint state- ment. Although the trans-Atlantic trade remains stable compared to the trans-Pacific and Asia–Europe, "under the current environment…, the Atlan- tic trade also requires substantial blank sailings in order to adjust capac- ity to the reduced demand," they said. To balance supply with the drop in volume, carriers blanked 48 sailings from April through week 32, ending EUROPE'S HIGH-VOLUME AUTOMOTIVE and machinery exports to North America have been hit hard by the coronavirus disease 2019 (COVID-19), raising questions about the long-term growth prospects of the trade. Lockdowns on both sides of the Atlantic slashed 70,000 TEU from the Europe–North America trade route from January through May, causing total volume to fall 6.8 percent year over year to 925,220 TEU, according to the latest data from IHS Markit, the parent company of The Journal of Com- merce. It is the first time in five years Importing & Exporting | Ports | Carriers | Breakbulk | Global Logistics

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