Let's start with the good news. As seen by the shipping companies, the West-East trans-Atlantic route (Europe/East Coast United States) has turned out in a certain sense to be the happy surprise of the first half. The market held up well and the main operators have not suffered any major slowdown this summer.
Reefer activity, in particular, is still showing growth on the route to put icing on the cake!
For the first time for a decade, therefore, we can expect solid results on this market. At the same time, in volume terms, the trans-Atlantic route represents two or three times less than the Asia-Europe and trans-Pacific trades. It cannot therefore make up for the reductions experienced on these routes.
Capacities currently exceed demand and the sporadic "blank" sailings which occurred during the summer only had a very small impact on rates. Prospects for the months to come are not favourable. In the retail sector, forecasts for Christmas toys and associated goods are at the lower end of the scale. In volume terms, therefore, the year is likely to be disappointing overall in this sector.
Naturally, the shipping companies have tried to respond by announcing general rate increases so as to create a rate effect and thus generate an increase in activity. Combined with the effect of the blank sailings which occurred in Golden Week, this strategy could work, at least by stopping the downward trend and saving what still can be.
In the Europe-Asia direction, where volumes are markedly lower, there is plenty of spare capacity and rates are generally stable. Results are slightly higher than expected, however, thanks to acceptable volumes and, here again, growth in reefer activity. France has come out of this fairly well, thanks to a dynamic export performance in wines and spirits and agricultural goods.
Last year, the start of the trade war between the United States and China led to a rush for capacity which is no longer being experienced this year. The trade war has in a certain sense become structural, which has deflated the inflationist phenomenon seen in ocean freight rates in 2018.
There is no reason to expect a significant recovery in freight rates in the short term. It is for this reason that the shipping companies are currently announcing widespread general rate increases and, at the same time, cancelling vessel departures on a disappointing "last minute" market.
Transporters are thus knowingly risking disrupting the logistics chains of clients with whom they have agreed annual contracts even though this will have an impact on business relationships which they will have to manage. This attitude is symptomatic of a sort of panic among the shipping companies.
Overall, the shipping companies will have a lot of difficulty producing positive operating margins this year. The gap between the supply structure and demand on East-West routes is having too great an impact on the level of ocean freight rates.
In this context, the "political" announcements of plans to build new ships (like those made by Hyundai Merchant Marine and then Evergreen) are having a devastating and highly counter-productive effect from the point of view of the shipping companies.
The introduction of surcharges related to the coming into force of the new IMO regulation on sulphur oxide emissions represents a final limited opportunity to minimalize current rate erosion. The great majority of shippers are aware of this and are ready to make their financial contribution to the preservation of the planet. But they will insist on having tangible proof before putting any money on the table. The shipping companies' demands, therefore, will have to match shippers' own cost assessments.
The increase in fuel prices will have to be shared out in a balanced manner. Clarifications are still awaited from the shipping companies to ensure that a win-win relationship is established.