Time to help yourself to the shipping lines’ cash pile
The shipping lines pumped so much capacity into the China to Europe trade lane, to make a fortune over the last two years, that they can’t make the permanent capacity withdrawals that would protect their bottom lines and now the ‘scales have moved’ in the shippers’ favour.
In the weeks since Golden Week ended, carriers have been trying to protect rates by taking out significant levels of capacity, at levels that are not only higher than pre-pandemic 2019, but are also increased from what was scheduled to be blanked just three weeks ago.
With an average capacity reduction from Asia to Europe of 19%-27% over weeks 41-43 we can still see some freight rates on this route continue to fall considerably, leaving analysts to question why.
We think the answer is simply that the carriers added so much capacity to try and keep up with demand since early 2020, that even with these levels of capacity reductions, all the shipping lines are doing is bringing overall market capacity in line with 2019.
Actually overall shipping capacity is still a bit higher, which means that rates will stay soft and your forwarder should be lowering your rates. We keep our sell rates in line with market movements, but not all forwarders are the same, so it might be worth checking!
The really big question is whether carriers can even blank enough capacity to control the freight rate drop.
The peak reductions, during the early days of the Covid impact, when the shipping lines believed that there would be NO demand for sea freight was 35%-53%, but that only lasted for a couple of weeks, before they dropped the capacity reductions to a more sober 10%-30% for a few more weeks.
Carriers are already above this range and any attempt at a 50% reduction in deployed capacity, will not only create significantly more supply chain problems, but will have shippers (and national governments) up in arms.
The shipping lines pumped the capacity in, to make a fortune over the last two years, and now they can’t make the permanent capacity withdrawals that would protect their bottom lines.