Carriers on the Asia-Europe trade have been carefully managing their capacity – but a large number of ULCSs headed for the trade could misalign the balance between supply and demand
An influx of new tonnage is set to be launched on the Asia-Europe trade before the end of this year – and into the next few years – heralding large ramifications for the supply and demand balance on this route.
In Q3 this year, CMA CGM received the last of a trio of 20,954-TEU vessels ordered from Hanjin Heavy Industries Group shipyard in the Philippines, which is set to boost capacity on the Asia-North Europe sling it will be phased into.
CMA CGM Louis Bleriot joins sister ships CMA CGM Antoine de Saint Exupery and CMA CGM Jean Mermoz, delivered in January and May respectively. The Aviator-class ships are CMA CGM’s largest so far.
CMA CGM Louis Bleriot was phased into the Ocean Alliance Asia-Europe NEU4 loop, branded FAL 1 by CMA CGM, on 19 October.
Capacity on this loop has jumped by 6.5% over the first nine months of 2018 due to new, larger tonnage phased in by CMA CGM.
The final two 20,000-TEU COSCO newbuilds have now been phased onto the FAL2/AEU3/LL2/FX2/NE3 service leading to 11 20,000-TEU ships, boosting weekly capacity by 40.4% at the end of October compared to January 2018.
Other ultra large container vessels are also headed to the Asia-North Europe trade before the end of the year: Evergreen will replace two 13,800-TEU vessels with two 20,150-TEU vessels from its G-class newbuildings on FAL6 service in early December, boosting the capacity of Ocean Alliance services by almost 10% in December.
More mega ships to come
And looking ahead, the supply on this trade is set to ramp up with a series of ultra large container ships all headed for this trade in the next two years. The latest carrier to announce new behemoths to join the trade is Hyundai Merchant Marine (HMM).
It has signed contracts for 20 eco-friendly box ships – which includes an order for the world’s largest box ships.
Daewoo Shipuilding & Marine Engineering will build seven 23,000-TEU vessels, to be delivered in Q2 2020, while Samsung Heavy Industries will build five 23,000-TEU vessels, also to be delivered in Q2 2020. Finally, Hyundai Heavy Industries will build eight 15,000-TEU ships, slated for delivery in Q2 2021.
The contracts come after letters of intent were signed with the shipyards earlier this year. HMM previously announced it will use scrubbers or LNG bunkering on the new vessels – and will decide which option after “thorough discussions with the finally selected shipbuilder.”
HMM said the benefits of its shipbuilding programme include being able to secure stronger “fleet competitiveness with the benefit of economies of scale” and helping the carrier to “form a stable basis for making profits.”
It said the programme was part of its “capacity of 1M-TEU” strategy. The new vessels will be deployed on Asia-North Europe and US East Coast trades.
BRL Consultants chief executive Barry Luthwaite noted “The only ultra large container ship orders recorded in the last six months between April-September 2018 centred on 12 23,000 TEU vessels for HMM... HMM has secured the confidence of creditors (mainly Korea Development Bank) to break new barriers with an order for the world’s largest container ships shared between Daewoo and Samsung.”
And on top of this, the trade is braced for CMA-CGM’s nine 22,000-TEU LNG-fuelled ships in Asia-Europe, to be delivered from 2020. MSC’s 11 22,000 TEU ships are set to be delivered in the same timeframe.
A tough time on the trade
These deliveries could upset the delicate balance between supply and demand, and indeed, might not be coming at a good time. According to Drewry, “It has been a tough year for carriers plying their trade on the key Asia-North Europe corridor. The demand growth that has been evident elsewhere, such as in the transpacific simply refuses to come.”
It said that after seven months of the year, westbound volumes from Asia-North Europe were down by 1% following “lacklustre” demand in the key import markets of the UK and Germany.
It added “The trade has had to endure rough years in the recent past; declining by 4% as recently as 2015, but the issue has been made more acute this year due to the heavy influx of new tonnage joining the trade. The upshot is that headhaul utilisation has fallen from an average of 91% last year to a meagre 84% up to the end of July.”
Carriers are aware of the situation and have been trying to curtail services to even out supply and demand. 2M reduced weekly deployment capacity on its Asia-North Europe service portfolio by 13.5% by the beginning of October, compared to the start of the year, mainly due to the closure of the AE2/Swan service. However, according to reports, this service is set to launch again in December.
Port of Rotterdam Authority chief executive Allard Castelein and Governor of the Brazilian state of Ceará, Camilo Santana have signed an investment agreement regarding the European port’s participation in developing the port of Pecém.
The agreement sets out how the Port of Rotterdam Authority will invest some €75M (US$86M) in Pecém’s port-industrial complex, constituting a 30% share in this enterprise. In addition, the Port of Rotterdam Authority will gain a joint say in strategic and investment decisions as well as representation in the Brazilian port’s executive board, supervisory board and management. The partners expect to conclude the participation agreement before the end of 2018.
Mr Castelein said “Our participation in the port of Pecém is a great opportunity. This port has clear growth potential and its strategic situation gives it a strong position for developing into northeast Brazil’s foremost logistics and industrial hub. This in turn will create new opportunities for international trade flows and investments from Europe”.
With an average growth of 22% in the past decade, Pecém is developing at a rapid pace. Pecém’s port-industrial complex is home to numerous logistics and industrial facilities, including a container terminal, power plants, a steel mill and wind turbine manufacturers.
Another feature adding to Pecém’s appeal is that a large share of the required infrastructure for the port-industrial complex (breakwaters, berths, land, etc) has already been developed.
The state of Ceará has recently invested in other international partnerships aimed at further developing the region as a hub of international connections for northeast Brazil. For example, the German company Fraport operates the airport of Fortaleza, and in May 2018 Air France/KLM set up a connection to this airport in partnership with GOL. In addition, the state is laying underwater data cables for telecommunications to connect northeast Brazil with Africa and the USA.
A statement summed up “The new partnership with the Port of Rotterdam Authority allows Pecém to develop into the leading maritime hub for northeast Brazil.”