Drewry: Bigger Ships to Continue Pressuring Freight Rates

  • As Seago Line Sees Modest Profit amid Lower Freight Rates

Westbound Asia to Mediterranean volumes have been disappointing thus far in 2017, but shipments heading in the opposite direction are surging, according to shipping consultancy Drewry.

Similar to the Asia-North Europe trade, the backhaul market is currently on top in the Asia-Mediterranean/North Africa route. Eastbound shipments increased by 16% year-on-year in the first two months of 2017, massively overshadowing a 3% drop in the westbound leg.

The same CTS numbers confirm that container traffic from Asia to the Med grew faster than to North Europe in 2016, rising by 2.5% versus 0.3%. However, despite the sluggish start to the year Drewry’s latest forecast for the westbound Asia to Med trade is for a slight improvement in the growth rate. Most of the impetus for growth this year is likely to come from the Western section of the Med with the Eastern economies on less firm ground.

“The westbound trade should return similar growth as seen in 2016 this year, of between 2-3%. The West Med region has more upside than the East Med but freight rates will continue to be pressured by the entrance of bigger ships,” Drewry said.

On the capacity front the shake-up caused by the alliance restructuring will see westbound slots increase by May to their highest level since August last year, the shipping consultancy informed.

Subsequently, carriers will need to see the expected seasonal lift in demand over the coming months if they hope to achieve load factors close to 90% to support rates.

Drewry said that, despite a slew of missed sailings in February to cater for Chinese New Year, it was not enough to prevent westbound ship utilisation falling to 64%, which was the worst level in nearly two years.

In the meantime, despite strong headwinds in the intra-European market, short-sea and feeder operator Seago Line, part of Maersk Group, closed its 2016 financial year with a profit of USD 75 million.

However, the company’s net results were considerably lower in 2016 when compared to the profit of nearly USD 140 million seen in 2015.

According to the company, 2016 turned out to be a difficult year due to marginal market growth, oversupply coming from increased capacity from existing competitors and from larger shipping companies entering the intra-European market, intensifying competition on prices.

“The main driver of Seago Line’s reduced result is a decrease in freight rates which has now made the rates reach an unsustainable level,” Seago Line said.

“In the last part of 2016, we saw signs of an improving supply-demand situation due to increased scrapings which is encouraging, but the market situation is still very challenging,” the shipping firm added.

When talking about its plans for 2017, Seago Line said it will continue its “digital transformation journey” in an effort to make shipping easy for its clients.

This will be supported by internal restructurings of several business areas and optimization of processes.

Towards the end of 2017, Seago Line plans to phase in the first of its new Ice Class vessels. The newbuildings will replace existing vessels and enhance service coverage to and from the Baltic Sea, the company said.

Seago Line operates a fleet of 62 vessels with a capacity ranging from 375 to 3,000 TEU.

World Maritime News