More sailing cancellations are on the way as the P3 alliance has yet to spell out its intentions in any detail, and competitors will be loath to risk losing market share by taking more radical capacity reduction measures in the interim.
Drewry expects ocean carriers will go for another round of serious sailing cancellations over this year’s winter season instead of service withdrawals. Whereas last year’s programme was motivated by indecision over future trade growth, this year’s is also driven by uncertainty over the P3 alliance’s intentions.
Maersk, MSC and CMA CGM have so far only outlined the number of East-West services they intend to provide from 2Q14, and do not expect to confirm port rotations and how services shared with other lines will operate until the first part of 4Q13, so competing carriers will not want to jeopardise market share in any way before then. Despite the current state of over-capacity on East-West routes, only the merger of two peak season transpacific services in mid-October has been announced to date (CKYH’s CAX and Evergreen’s CPS2). On the other hand, sailing cancellation announcements are increasing every week.
For example, in the transpacific tradelane from Asia to the West Coast of North America, where there were no sailing cancellations in July, followed by just two in August, 12 are being omitted in September and another 12 so far in October, although most of the latter stem from China’s national Golden Week holiday between 1-7 October. The result is that vessel capacity will be reduced by approximately 2.8% in September, and by at least the same amount in October, which will help to get average vessel utilisation back up to around 90%, thereby putting ocean carriers in a better freight rate negotiating position (see table below).
Asia to WCNA
In the tradelane from Asia to Northern Europe, where no sailings were omitted in August, six have been cancelled in September, and another five are lined up so far in October. This means that vessel capacity will be reduced by approximately 1.7% in September, followed by at least the same amount in October, which will again take average vessel utilisation back up to the comfortable threshold of 90% (see table below).
Asia to North Europe
On the route between Asia and the Mediterranean, where ocean carriers have made a regular habit of cancelling sailings throughout the year, another seven were omitted in September, and six have so far been announced for October (see table below). More will presumably follow, although the need for it is questionable as average vessel utilisation will already be over 90%.
Asia to Mediterranean
The trend means that shippers need to pay more attention to forward planning over the next six months, rather than assume that a contracted carrier will usually have a vessel offering the right port pairs on the right berth at the right time. As shown in the tables above, ocean carriers have got used to temporarily regulating vessel capacity supply to match uncertain demand over the past 12 months, so the requirement for more vigilance over schedules is not new; only its importance is escalating.
The timing of cancelled sailings will, presumably, continue to be planned around GRI’s, thereby ensuring that the filling up of surrounding vessels encourages shippers to pay up or shut up should roll-overs occur. As can be seen from the tables above, when sailings are seriously omitted, freight rates usually jump up, although there are exceptions due to freight rate levels sometimes being dependent on other factors than vessel utilisation.
It will be interesting to see what happens after the P3 alliance clarifies its intentions because ocean carriers will want to consider more serious capacity reductions in 2Q14, and the introduction of further slow steaming, depending on the availability of appropriate berthing windows in the major ports. The G6 is known to be exploring several possibilities, including extending the scope of the alliance to tradelanes outside of Asia/Europe and Asia/ECNA.
Ocean carriers will cancel sailings instead of withdrawing whole services during the northern hemisphere’s winter season, which practice will continue right up to the introduction of P3’s new services in 2Q14.