Container Shipping:Disappointing peak season as rates continue to tumble on Asia-Europe routes;Transpacific volume strong,A-E weak
Asian liners with the largest capacity exposure to Asia-Europe trade are CSCL(c.34%), Hanjin (c.34%) and China Cosco (c.32%). Those with the largestcapacity exposure to Asia-US trade are K-Line (c.49%), NYK Line (c.41%),Hanjin Shipping/OOIL (c.34% each). Top picks OOIL, MOL; top avoids CSCL,HJS.
Spot freight rates fell w/w, driven by continued weakness on Asia-Europeroutes implying no peak season in 2015: The Shanghai Export ContainerFreight Index (SCFI) fell 8% w/w for the week ending Sep 25. Spot rates fell31% w/w on China-Europe routes to US$313/TEU (implying no success yet vsplanned rate hike of $500-$550/TEU from Sep 20). This is the eleventh rate hikeattempt this year whereby the liners met with limited success. We areapproaching the slack season of the year, which could result in furtherdownward pressure on spot rates. We believe more capacity cuts are needed tosupport freight rates as capacity growth is still running ahead of demand. Linerscontinued to void sailings with 13 void sailings in August (highest in 2015) anda further 11 void sailings in Sep. The total capacity on the Asia-Europe tradewill still be 2.6% higher y/y in 4Q15 vs 4.3% drop in demand in Jan-July asthere are still 88 vessels expected to be delivered in Sep-Dec, 2015, totaling528K TEUS with September being the peak month at 33 vessels or 181K TEUs(source: Alphaliner, Clarksons), putting continued pressure on freight rates.
Spot rates also fell 30% w/w on China-Med routes. Spot rates were also6%/4% lower w/w on China-US West Coast and China-US East Coast routesat $1,291/FEU and $2,318/FEU (implying no success yet on China-US WC andChina-US EC routes vs planned rate hike of $600/FEU from Oct 1 despitestrong demand during the peak season so far). Intra-Asia spot rates were mixedw/w. Spot rates were steady w/w on China-SE Asia/Taiwan routes, fell 3% w/won China-Korea routes but rose 2%/5% w/w on China-HK/Japan routes. Forlonger trades, spot rates fell 2%/6%/32% w/w on China-E/W Africa/PersianGulf & Red Sea/S America routes and were steady w/w on China-Aus & NZ/SAfrica routes. Bunker fuel prices fell 2% w/w.
Spot rates fell 39% y/y: China-Europe rates fell 62% y/y, China-Med rates fell72% y/y while China-US EC and China-US WC rates fell 43%/33%. In Intra-Asia, rates fell 6%/10%/15%/18%/19%/24% on China-HK/W Japan/Korea/EJapan/Taiwan/SE Asia routes. For longer trades, rates fell7%/10%/39%/40%/79% y/y on China-S Africa/E/W Africa/Aus & NZ/PersianGulf & Red Sea/S America routes. Bunker fuel price rose 8% m/m but fell 59%y/y.
Recent news: 1) Hapag Lloyd plans to raise Asia-Europe/Med rates by$950/TEU from Oct 19. 2) Far East-US container trade volumes rose 10% y/yin August (YTD y/y rise was 5%) driven by peak season demand. However, FarEast-Europe container trade volume fell 7% y/y in July (vs YTD y/y fall of5%) implying no peak season demand in 2015. 3) Contex charter rates fell 1%w/w, 5% m/m but rose 23% y/y (source: Alphaliner, JOC, Bloomberg).
Share prices were lower last week: NOL (+11% w/w), OOIL (-2%) and RCL(-3%) outperformed while SITC (-9%), HMM (-9%) and Hanjin (-7%) lagged.