Shippers fight for allocations as early peak season hits Asia-Europe

Source: Journal of Commerce
Date: 21st May 2024

Shippers on Asia-Europe trades are fighting to keep their weekly allocations from carriers in place as demand from an early peak season tightens capacity that is already struggling to cope with port congestion in Asia and longer transit times around southern Africa.

The unseasonally strong demand on Asia to North Europe and Mediterranean routes has brought the peak season forward by more than a month, driving up rate levels and creating shortages in equipment.

Asia-Europe shippers have told the Journal of Commerce that carriers are becoming more creative in their space allocations as the spot market soars and capacity tightens.

The carriers are cutting allocations or limiting them with their typical tools such as blank sailings, rollovers, swapping of allocation, weight limitation, new cancellation policies, etc. There is pressure and are fighting to get back the allocations agreed, but they are again getting very creative and on-time cargo is a thing of the past.

A similar situation is unfolding on the trans-Pacific where ocean carriers are slashing — or in some cases even eliminating — allocations to non-vessel-operating common carriers (NVOs) for fixed-rate bookings as they concentrate on booking cargo at much more lucrative spot rates.

Average spot rates from North Asia to the UK reached $4,950 per FEU last week, up 42% since the end of April and more than three times the same week last year, according to Platts, a sister company of the Journal of Commerce within S&P Global. Asia-Mediterranean rates are up 34% since the end of April at $5,500 per FEU, a 150% jump year over year.

Reports of even higher rates are coming in from the market. Faced with a choice of having their cargo rolled over in Asia or paying highly elevated rates to get the containers onboard a ship, shippers often have little option but to choose the latter.

A UK-based shipper told the Journal of Commerce that a 40-foot container last week from Ningbo to France was over $8,000 per FEU including surcharges, even though the estimated time of departure was only mid-June.

Market taken by surprise
The sudden spike in average rates in the past three weeks comes on the back of higher demand hitting Asian factories earlier in the year. The Asia-Europe and Mediterranean peak season traditionally runs from June to December, but buyers are bringing forward orders from Asia.

“The peak season for us is months earlier than usual, and we are shipping our Christmas goods from late May this year, instead of late July as we have in the past,” the Asia-based shipper said.

The earlier peak season was confirmed by Hapag-Lloyd.

“We see the peak season advancing by about four to six weeks, spurred by strong demand in Europe and taking [into consideration] the longer transit time around the Cape of Good Hope,” a spokesperson for the carrier told the Journal of Commerce.

There is a rebound in demand for sea freight that is contributing to an early peak. But the strength of the demand and its timing have taken the market by surprise.

An early peak in June is expected but what we have seen the past three weeks is not normal. Carriers and shippers have been surprised by the situation, with the reason being higher demand [came] earlier than expected.

While the order book is closing in on 30% of the existing fleet capacity, finding space to accommodate the rising demand is a problem. Alphaliner estimates that despite 1.14 million TEUs of new capacity being delivered so far this year, members of the three mega-alliances are still 36 ships short of fully staffing their 25 Asia-Europe loops.

With the average vessel size on the trade currently at 14,150 TEUs, approximately 509,400 extra slots — or 10% of the total capacity — were still needed to guarantee weekly sailings for all alliance loops.

Port congestion delays

Adding to the pressure on capacity is congestion in Singapore and at Chinese ports. Hapag-Lloyd said eastbound vessels were being delayed for up to six days in Singapore and by two days in China, a reality that was further lengthening voyages and leading to equipment shortages.

“There’s a serious empty shortage in East China and many vessels are getting stuck in Singapore so their schedules are slipping,” the UK-based shipper said. “With vessels not able to return on time, there is a big deficit in empty containers that has developed in China.”

But the source described his problems as “happy trouble” that are the result of strong sales in March that need urgent replenishment because some items are out of stock at European distribution centers.

Addressing the strong demand could become even more difficult, noted Sea-Intelligence Maritime Analysis CEO.

Sea-Intelligence Maritime Analysis said one of the trigger points for the rise in spot rates was a shortage of vessel capacity, caused at first by the around-Africa services and compounded by a steady rise in port congestion in Asia and the Western Mediterranean.

“On top of that, we now have a sudden demand surge,” Sea-Intelligence Maritime Analysis wrote. “This leads to worsening port congestion. Worsening port congestion leads to longer vessel waiting times. This reduces capacity even further [and] causes carriers to increasingly favor loading full containers, worsening the equipment situation even more.

“If the demand spike continues, we might well have gone beyond the point of no return — in which case we may now be heading into yet another pandemic-level disruptive period,” Sea-Intelligence Maritime Analysis warned.

NEOLink cooperated with our order processing system. He did not replace it or force solutions. Logfret did it better than other companies on the market – it adapted its system to ours. Logfret didn’t come to us saying, “We have this solution, and you either use it or we won’t cooperate.

Procurement Director

Pumps Manufacturer

We made a huge improvement in global visibility with a global platform—anyone can log into NEOLink and look at a shipment anytime, anywhere in the world. We wanted a freight forwarder with a good technology platform, which could handle the complexities of our business and we found NEOLink!

A global leader in performance materials and specialty chemicals

My suppliers have less or zero experience with international logistics. Thus, not able to create proper documentation which leads to tremendous delay. Thanks to Logfret who provide training to all suppliers and work with us to build up a consolidation hub to reduce transportation costs significantly.

One of the world’s leading designers, manufacturers and distributors of ride control products