Asia-Europe

The strength of bookings over the past month has surprised container lines executives, even when factoring some front-loading and replenishing inventories that are back to pre-pandemic levels, writes Journal of Commerce Executive Editor Mark Szakonyi.

European importers are facing pandemic-era port congestion and soaring rate levels, with only the resumption of regular vessel transits through the Red Sea likely to address the growing supply chain disruption.

With vessel capacity tight and freight rates on the rise, there are several market dynamics that emerged during the pandemic that are already beginning to play out once again, writes Lars Jensen.

Asia-Europe contracts have been signed at levels that are being dwarfed by the soaring spot market, and with capacity tightening, the lower-paying cargo is first in line to miss a sailing.

The ability to refuel a ship while loading cargo in port is key to the successful deployment of alternative fuels for ocean carriers at bunkering hubs.

The current market situation — amid the Red Sea crisis, growing port congestion and a sudden rise in demand — is similar to the early parts of the pandemic, where insufficient capacity led to the largest rate increases the industry has ever seen, writes Lars Jensen.

The peak season typically runs from June to September, but unseasonably strong demand is placing capacity under mounting pressure and driving up rate levels on the trade lane.

Longer transit times to Europe and North America as vessels continue to divert via the Cape of Good Hope to avoid the Red Sea region has delayed the return of empty containers to Asia, particularly China.

The customs pre-arrival security and safety program is being implemented in three steps, starting with ocean and inland waterway carriers in June.

Poor schedule reliability, challenged by a container supply chain that has been stretched thin by diversions away from the Suez Canal, is causing spot rates from India to Europe to rebound.

Carrier attempts to mitigate the extended transit times of sailing around southern Africa by increasing the use of transshipment in the Mediterranean are being frustrated by growing port congestion.

The strains to the extended container shipping system amid the ongoing Red Sea disruption are showing again, largely due to higher-than-expected demand in Europe and the US for Asia imports.

European importers are shrugging off gloomy economic forecasts, but rising volume out of Asia is putting pressure on available capacity that is already stretched by longer transits around southern Africa.

The spread between spot and contract ocean freight rates has widened amid fewer voyages from Asia to Europe due to the longer transit times around southern Africa’s Cape of Good Hope.

But major forwarders do not expect the Red Sea ship diversions to provide any meaningful lift in Asia-Europe rates beyond the second quarter.

The carrier has pledged to remain loyal to its core container shipping segment but at the same time is rapidly expanding its terminal business and increasing its share of inland transport capacity.

The new partnership expects to have enough containers positioned at its major hub ports to keep ships full on its mainline trades, thus eliminating the need to unexpectedly cancel a voyage due to a lack of demand.

Carriers have been unable to shake a perception among shippers that surcharges were being set above cost-recovery levels, with a report this week directly accusing carriers of “profiteering” from the ETS.

The deaths of three bulk carrier crew in early March has spurred an international body representing seafarers to downgrade the busy shipping lanes from “high risk” to “warlike” and has urged all carriers to avoid sailing through the region.

Longer voyages around Africa to avoid Red Sea attacks have naturally resulted in greater fuel consumption from vessels, but with Europe now charging carriers per ton of emissions, the cost implications are significant.

Dubai continues to be one of the more popular destinations for European importers with time-sensitive cargo, with the airport able to covert ocean freight to air cargo in 24 hours.

Hapag-Lloyd's CEO insists the total cost of the network will be lower because Gemini will be able to better utilize controlled assets and deliver more efficient cargo connections in the hub and spoke model.

As the shock of diversions around southern Africa wears off and weekly schedules mostly return to normal, the spot rates that peaked in mid-January are falling fast.

The crisis has been a logistical headache for container lines, but overcapacity in their fleets is enabling them to cover the loss of effective capacity being used up by the longer transits around southern Africa, Lars Jensen told TPM24.

A drop in schedule reliability was expected on trade lanes such as Asia-Europe and Asia-US East Coast, but the diversions around southern Africa have also affected routes not directly connected to the Red Sea.

Folk Maritime’s stated goal is to “fill an essential void” in the regional maritime market, with its launch coinciding with heavily disrupted container shipping flows.

The additional operating costs of diverting ships around southern Africa does not justify the scale of the surcharges being levied by ocean carriers, according to the European Shippers’ Council.

The move has already prompted Busan, one of the ports most affected by the downgrade, to urge Maersk and Hapag-Lloyd to rethink their Gemini vessel schedules and restore some calls at the South Korean gateway.

The ETS will affect 4,000 Asian-flagged vessels, which equates to one-third of the total 12,500 cargo and passenger ships that are subject to the European Union carbon tax.

High inflation, the rising cost of living and geopolitical tensions suppressed demand from European consumers and industry in 2023, with few signs of a turnaround apparent for this year.

Container shipping networks from Asia to North Europe and the Mediterranean are being reshaped as carriers redeploy capacity to compensate for the additional transit time needed to sail around southern Africa.

Terminals in Europe say ocean carrier schedules have been disrupted by the ship diversions around southern Africa, but there is still no sign of the port bottlenecks that were expected when the rerouting began.

The huge order book due to be delivered through 2024 is helping ocean supply chains withstand the Red Sea crisis, experts say, but another shock would cause a “pandemic-type crisis.”

The seasonal rise in air freight demand out of China ahead of the holiday has been strong, but analysts say the Red Sea effect on rising volumes remains unclear.

The South Korean port is the latest to establish its credentials as a sustainable fuel hub as competition between global gateways intensifies.

While shippers are using terms in their contracts to push back against the higher costs linked to the Red Sea and Panama Canal disruptions, carriers are also looking to void those terms altogether.

The green methanol feeder service will initially cover Baltic and Scandinavian ports operating out of the Port of Rotterdam.

Longer voyages around southern Africa have created an instant tonnage shortage and will make it difficult for carriers to maintain weekly sailing schedules, says Jeremy Nixon.

An executive for the carrier said he expects liners and shippers will eventually adjust to the lengthier transits around southern Africa but acknowledged it will take time before rate volatility subsides.

Longer transit times caused ships to miss their arrival slots last month in ports across North Europe and the Mediterranean, and carriers have warned shippers to prepare for further disruption to their supply chains.