Asia-Europe container freight rate surge – is it sustainable?

China was at the epicentre of the Covid-19 pandemic and rapidly shutdown the country to contain the disease. This had a dramatic impact on the Chinese economy but China made progress to contain the virus. In April, VesselsValue noted that cargo miles had recovered and started to follow a similar pattern to last year. Demand declined shortly after this however, as throughout May, cargo miles were lower than levels seen at the same time last year.

This decline correlated with the increase in Covid-19 cases in the US, as the impacts of the virus were felt later in the West and demand for goods lessened due to lockdowns. In Europe, countries emerging from lockdown put measures in place to safely receive cargo and ports began to clear. Things took a positive turn at the start of June, and cargo miles began to improve. Meanwhile, China's two tenets of the internal growth strategy and building its urban infrastructure have been the driving forces behind its remarkable recovery.

The official industrial production growth in China in August 2020 was up 5.6% compared to August 2019. By contrast, US industrial production growth in August 2020 was 7.7% down year-on-year. China's GDP is now forecast to grow by 1% in 2020, which does not seem all that remarkable until it is compared with global growth, which is forecast to slump by 4.9% in 2020.

Looking ahead, GPD growth in China is forecast at 8.2% next year, versus a global GDP growth forecast of 5.4% in 2021. With regards to global seaborne trade, Clarkson Research Services forecasts this will shrink by 4.4% across 2020, similar to the level seen in 2009 after the global financial crisis. The recovery in China and then in Europe saw a mini-boom on the Asia-Europe container trade routes in Q2 and Q3 2020.

At the end of Q3, the headline rates on Asia-Northern Europe (specifically Shanghai to Antwerp) had increased to US£2,336/FEU according to Alphaliner. This is the highest level for three years. This recovery in East-West container freight has been overshadowed by the boom in rates taking place in the transpacific trade. According to Alphaliner, earnings on the Asia-Europe trade rose to US£0.19 per nautical mile. This is far below the earnings on the Shanghai-Los Angeles route of US£64 per nautical mile, but the presence of 18,000+ TEU mega ships on the European route brings down the economies of scale.

The marginal costs favour the 18,000+ TEU mega ships. Marginal costs are one of the few elements vessel operators can directly control that influence the bottom line. Fill a larger ship and economies of scale dictate that the marginal costs will be lower. The 18,000+ TEU mega ships have now been trumped on the Asia-Europe trade with the introduction of CMA CGM Jacques Saade, now the world's largest liquefied natural gas-powered container ship, which has set a new world record for the number of full containers loaded on a single vessel.

Sailing from Asia-Europe with a verified load of 20,723 full containers on its maiden voyage, CMA CGM Jacques Saade, is part of a weekly service comprising 13 calls over 84 days. CMA CGM Jacques Saade has a potential full load capacity of around 24,000 TEU. "To carry so many containers, we have to be able to stack them 10 or 11 high on the deck, giving rise to strict constraints linked to the vessel's structure and, crucially, how containers are stowed," explains E&W Lines operations manager Marc Olazabal, who directs the Group's operations, including on the FAL 1 line. "The vessel is so well designed that we were able to pile containers of over 10 tonnes in a 10-high stack, which is outstanding. During the call in Singapore, the nine cranes in position completed around 4,000 loading and unloading movements.

All the cranes had to have the same number of movements for the operation to be completed at the same time, and to avoid any reduction in our productivity," he says.

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