January 6, 2016

Index tracking air, sea activity in four key trades hit new lows in December

Reading on shipper, forwarder confidence in U.S.-Europe, Asia-Europe trades at lowest point since index's March 2012 launch.

By DC Velocity Staff

A monthly index that tracks shipper and freight forwarder confidence in the activity of the U.S.-Europe and Asia-Europe shipping lanes hit its lowest level in December in the index's nearly four-year history, the firms that publish the report said yesterday.

The "Stifel Logistics Confidence Index," published by U.S. investment firm Stifel Financial Corp. and U.K.-based consultancy Transport Intelligence, posted a score last month of 45.4, continuing what has been a months-long decline. The index, which was first published in March 2012, covers two-way air and sea trade between the U.S. and Europe, and similar activity in the Asia-Europe trade.

Of the four trade lanes, the Europe-to-U.S. lane recorded the best readings for air and ocean shipping, both in terms of the current situation and six months out, the index found. The main reason for the relative outperformance has been the impact of a strong U.S. dollar versus the euro, which has made European exports more price competitive, according to the authors. By contrast, the performance of trade lanes between Europe and Asia, in both directions, continues to be poor, the index found.

The total airfreight logistics confidence index last month posted a reading of 46.6. That is 9.2 points lower than in December 2014, and 9.8 points lower than in December 2013, according to the index's historical data. The logistics confidence index for sea freight hit 44.3, down 14.7 points from December 2014 levels, and 14.3 points below December 2013, according to the index.

The airfreight industry, which has been in a 15-year torpor, continues to struggle. Too much inexpensively priced lower-deck capacity, combined with weak demand, has created a chronically unprofitable situation. Though the decline in jet-fuel prices has helped offset the dual effects of overcapacity and weak macroeconomic conditions, that is unlikely to be a permanent salve, the authors said.

In sea freight, which has been plagued by severe overcapacity for several years, steps are finally being taken to address the problem. Last month, Danish liner Maersk Line announced that it would lay up one of its 18,000 twenty-foot-equivalent (TEU) vessels, the largest in the container trade. In addition, French carrier CMA CGM's $2 billion purchase in December of struggling Singapore liner company Neptune Orient Lines, and the Chinese government's decision last month to green-light a merger between state-owned carriers China Shipping and COSCO, should help move the scales closer to balance, the report said; the four companies, along with Maersk and Mediterranean Shipping Co., the two market leaders, control nearly half of all global container shipping capacity.

A survey by the companies of shippers and forwarders found that 71 percent believed other liner companies would follow Maersk's lead and remove capacity from the market. Of those, 84 percent believed capacity reductions would last more than four weeks, indicating that the drawdowns could be in place for some time.

The proliferation of big ships in all global trades has caused an upheaval across the seagoing supply chain. U.S. ports, for example, are scrambling to expand their infrastructures to accommodate the ships' berthing and manage the efficient loading and unloading of boxes. In addition, the larger vessels are expected to call at fewer ports in an effort to maximize operating efficiencies, a practice that will pit ports against one another to be the location of choice.

Last month, U.K.-based Drewry Shipping Consultants Ltd. said that in the Asia-West Coast trade there are more than 50 ships of 10,000 TEUs or larger. There were 14 such ships at the start of 2014, Drewry said.

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