one belt one road

Traffic rising on the Silk Road

Rail freight traffic from Europe to Chongqing in China exceeded traffic in westbound direction in 2018. The number of trains travelling from Europe to the southwestern Chinese city reached 728, out of a total of 1,442 freight trains in both directions. This is the first time that eastbound traffic was more than westbound movement.

Westbound traffic between China and Europe has traditionally accounted for the majority of the volumes on the New Silk Road. The return of empty containers to China has been a dilemma for operators, as it is a costly procedure, pressing the optimal use of Chinese funding tools. Creating a balance between east- and westbound traffic has been one of the main aims of operators active on the New Silk Road.

117 per cent growth

The number of trains traveling back to Chongqing surpassed the number of outbound trains for the first time in 2018, said Yuxinou (Chongqing) Logistics Co in a Xinhua report. In general, traffic between the Chinese city and Europe witnessed a surge last year: the volumes increased by 117 per cent, according to the Chinese media source.

Although recent figures have not yet been announced by other provinces, the imbalance between east- and westbound traffic is witnessed in many other Chinese provinces. For example, trains between Tilrburg in the Netherlands and Chengdu in China accounted for 235 in 2017, of which 102 trains were in the eastward direction.  Only half were fully loaded, explained Jialu Zhang, representing CIPI in Tilburg.

Imbalance

“The imbalanced volumes of import to and export from China has created challenges for the further development of the round-trip rail services. Therefore, promoting and stimulating the export trade from the Netherlands to China by rail has become one of the essential task for both GVT and its Chinese partner”, Zhang explained earlier.

Following an equal trend in deep sea freight transport, eastbound traffic requires more incentive and thus, market prices along this route are lower than in the other direction. While eastbound freight rates are subsidised by about fifty per cent, in the direction of Europe this accounts for 25 per cent,” explained the Group of European TransEurasia Operators and Forwarders (GETO) in earlier comments.

End of subsidies

Once the balance of export and import is there, train services should be able to operate without subisidies, is the general understanding. Although not confirmed, many have suggested that the Chinese subsidies will be phased out starting from 2020. “Most railway managers and operators are likely to push the downward trend of actual costs, an indispensable trend to safeguard the train offers for the long term in especially the eastern direction”, GETO explained.

Moreover, an increase in eastbound traffic serves the rail freight industry in that rolling stock is used more efficiently. As almost twice as many trains depart in western direction, rolling stock often gets stuck in Europe, resulting in storage costs or the return of empty equipment by rail. “In rail freight, the return of empties can cost approximately fifty per cent of the rate.With increasing volumes in eastern direction, the situation is improving. The increase in eastbound traffic supports the return of locomotives, rolling stock as well as container equipment and thus, the cost of rail freight is decreasing by each percentage we increase eastbound traffic,” noted GETO.

Chongqing as a pioneer

Chongqing was the point of departure of the first train connection on the New Silk Road. In April 2015, the first regular cargo train departed from the southwestern city in the direction of Duisburg, Germany. It did so crossing the Chongqing-Xinjiang-Europe international line, which was established in 2011. What used to be a weekly service, had now become a service running three times a week. Since the start of this service, the number of trains going back and forth have quadrupled.

Currently, trains originating from Chongqing reach over thirty European countries, and the goods brought back are transferred to other Chinese cities and destinations in Southeast Asia. In November last year, the first train on the new railway link between Mannheim and Chongqing arrived. Chongqing was also connected to the UK with a new service from C.H. Robinson, linking eight cities in China and eight cities in Europe, with the most western destination being Barking in the UK.

New routes

New and extended connections to and from Chongqing are also planned for 2019. This month, a new connection from Chongqing to Minsk, Belarus has commenced. The first train departed on 4 January and will also stop in the Russian city of Vorsino. It runs three times a week in one direction. The block train from Chongqing to the Polish border city of Malaszewicze will run every day, and to the Polish capital of Warsaw every Sunday, according to Smile Logistics.

Source: Railfreight.com

MOL Triumph

2019 supply and demand balanced by less mega container ships

A “reduced appetite” for ordering ultra-large container vessels (ULCVs) and carriers instead aspiring to become global logistics integrators could finally balance container capacity supply with demand, according to new analysis from Drewry.

Indeed, at the end of last year Maersk’s chief executive, Soren Skou, told The Financial Times: “We for sure have to do some acquisitions in the logistics space, primarily to gain capability and scale.”

Currently, Maersk Line has just three ships on order and appears unconcerned that 2M partner and rival MSC is narrowing the capacity gap and South Korean HMM has returned to the shipyards in a big way.

“Aside from feeder ship replenishment, there has been no reaction from other lines to HMM’s mega-ship order and as such we have greatly reduced our projected orders for 2020 onwards,” said Simon Heaney, senior manager, container research at Drewry and editor of the Container Forecaster.

In September, HMM placed an $2.6bn order with South Korean yards – underwritten by funds from the state-owned Korea Ocean Business Corporation – for 12 23,000 teu and eight 15,000 teu ships for delivery from the first quarter of 2020.

Weaker global macro-economic drivers have contributed to a downgrade in Drewry’s port throughput forecast for this year to growth of approximately 4%, but it said the “softening trend should be mitigated by changes made on the supply side to better balance the market”.

It said that since its last forecast, the delivery of several newbuilds has been pushed back to 2020 and, with an expected increase in scrapping this year, the net addition to the container fleet this year is expected to be less than half that of 2018, at just 2.5%.

According to Alphaliner the global cellular fleet as at 31 December 2018 stood at 5,284 ships for 22.3m teu, representing a year-on-year growth of 5.7%, which included 165 delivered during the year, equating to 1.3m teu, while only 66 vessels, 111,000 teu, were scrapped.

Most analysts are predicting demolition levels this year will increase, back to levels seen in recent years, as older, high fuel-consuming vessels are taken out of service ahead of the IMO’s 1 January 2020 low-sulphur regulations.

Drewry also expects capacity curbs associated with IMO 2020, as ships are temporarily taken out of service for the retro-fitting of scrubbers that will enable the vessels to continue to bunker with less-expensive heavy fuel oil.

Moreover, it said that wider use of slow-steaming to lessen the impact of higher fuel costs would also help absorb new supply.

“This subsequently feeds into a much brighter supply-demand index forecast for carriers through 2022,” said Drewry, adding that, notwithstanding the slowing demand growth, the change in supply dynamics would contribute to “better freight rates and profits” for the container lines.

“Last year was one of the most unpredictable container shipping industry has faced,” said Mr Heaney, adding that he expected this year to be “similarly volatile” due to uncertainties associated with the US-China trade war and the new fuel regulations.

However, in an upbeat conclusion to its review, Drewry is predicting “another solid year for the market”.

And so far the evidence is that carriers are taking no chances that excess capacity will promote a new damaging “race to the bottom” for freight rates, by blanking a number of voyages on their east-west networks in the softer demand weeks around the Chinese new year holiday.

Source: The Loadstar

2019

What can the container port industry look to expect in 2019?

As we welcome in 2019, Drewry have shared their thoughts on the key issues and trends likely to affect the container ports and terminals sector in the year ahead.

Demand: We will see a softening of the global container port demand growth rate, down from an estimated 4.7% in 2018 to just over 4% in 2019 (although 4% is still very respectable and adds over 30 million teu to the world total). However, the projection for 2019 is highly uncertain due to the US-China tariff wars, Brexit etc. So there is a big caveat.

Capacity: We can expect to see continued caution by investors and operators in terms of investment in new capacity because returns are not what they used to be. Even Chinese players may be affected if China’s economy slows markedly (see above). Greenfield expansion projects will be the area hardest hit. Nevertheless, a global capacity addition of over 25 million teu can be expected in 2019, representing a spend of ~US$ 7.5 billion

Ships: The good news for the industry is that there will be no significant increase in maximum container ship size (maximum teu intake is going up but physical dimensions are not). However, cascading will still be very much at work across all trade routes, and each port will see increasing pressure on whichever berths are able to handle the biggest ships (and increased obsolescence of older berths).

IT: The opportunities offered by digitisation/automation/blockchain/smart ports/IoT/hyperloop (the list goes on) will continue to be vigorously explored by both terminal operators and port authorities. However, the big challenge remains: how to find the way through the minefield of options to focus on what will really work and what has the best potential.

Supply chain: Linked closely to the above, terminal operators and port authorities will continue to seek to expand their activities beyond the port gate into the wider supply chain, to try and diversify sources of revenue, tie in traffic and get closer to cargo owners. But it’s a crowded field, with the heavyweight liner shipping companies aiming to do the same thing. Remains to be seen if anyone can succeed at it.

Profit: Despite all the above challenges, the global container terminal industry will remain a very solid, profitable business. The 2019 industry throughput of over 800 million teu should generate EBITDA in excess of US$25 billion.

Source: Drewry.co.uk

future of shipping

New bunker adjustment fees keep spot rates firm

Asia-Europe ocean carriers from have announced further hikes in their FAK rates this month after successfully pushing through 1 January spot rate increases.

Alphaliner said rates on the route “remained firm in December, despite the resumption of the 2M’s AE2/Swan service”.

Hapag-Lloyd said that on 16 January, “due to strong demand”, it was increasing its FAK rates  from Asia to North Europe and the west Mediterranean to $2,200 per 40ft.

Maersk Line has increased its FAK rates to $2,300 per 40ft and CMA CGM has will raise its FAK rate by $200 to $2,400 per 40ft from 15 January.

This follows a surge in spot rates in the final week of last year, which saw the North Europe component of the Shanghai Containerized Freight Index (SCFI) leap 14.2% to $996 per teu, with spot rates for Mediterranean ports jumping 15.3% to $967 per teu.

There was no further increase for North Europe in today’s SCFI, although the Mediterranean saw a further increase of 3.1% to $997 per teu.

Moreover, since 1 January, carriers are implementing new bunker surcharge formulae, based on October/November fuel prices, which were a third higher than they are currently, at around $320 per tonne. So shippers should see the fuel surcharge element of their rates reduce in the coming months in line with the decline in bunker costs.

Elsewhere, the bear run on transpacific spot rates, which has seen prices tumble 32% and 24% respectively for Asia to the US west and east coasts since early November, was halted in the final week of 2018. In week 52, the SCFI recorded a 6.8% increase in spot rates for the west coast , to $1,883 per 40ft, and for east coast ports there was a jump of 9%, to $2,998 per 40ft.

The momentum continued this week, with the SCFI recording a 2.7% uplift for rates to the west coast to $1,933and to the US east coast by 4% to $3,119.

Phase 2 of the implementation of 25% tariffs on the import of over 5,700 Chinese goods is currently set for 2 March.

Source: The Loadstar