Vessel Demand Surge Strains Capacity on Asia Export Routes

  • Vessel Demand Surge Strains Capacity on Asia Export Routes

    Vessel Demand Surge Strains Capacity on Asia Export Routes

    The current surge in demand for vessels on Asia’s export trade lanes is putting significant strain on available capacity, despite the substantial increase in new shipping vessels. According to Alphaliner, carriers have added almost 1.6 million TEUs of capacity this year, but this has not mitigated the supply/demand imbalance on Asia-Europe and trans-Pacific routes. This is further compounded by longer voyages around southern Africa and port congestion issues​ (Flexport)​​ (Freightos)​.

    DHL Global Forwarding’s June market update highlights that demand exceeds the record increase in nominal capacity, and shortages are expected to persist through the August-October peak season. Carriers are attempting to boost capacity on the trans-Pacific and Asia-Europe trades, but their efforts are hindered by port congestion​ (Freightos)​. Currently, only 0.7% of the global container shipping fleet is idle, indicating that carriers are using all available capacity to manage the heavy volumes​ (WTA Group)​.

    The situation is exacerbated by equipment shortages, with the price of a 40-foot-high cube container in China rising dramatically. Container xChange reports that prices increased from $1,700 in April to $3,600 in June. This shortage is affecting many Asian locations, with new boxes fully booked until August​ (Flexport)​​ (Journal of Commerce)​.

    Port congestion remains a significant issue, especially as container volumes surge. For instance, Tanjung Pelepas in Malaysia has seen a 20% increase in container volumes this year, partly due to vessel diversions from Singapore. Similarly, Port Klang’s Northport terminal reported a 26% increase in volumes in May compared to the previous year​ (Freightos)​.

    The early start to the peak season, driven by concerns over potential labor strikes and tariffs, has led importers to front-load their cargoes. This front-loading is contributing to the current congestion and could lead to a weaker peak season later in the year. Analysts are divided on whether this early surge will result in an early end to the peak season, with some predicting sustained demand through Q3 while others foresee a slowdown in the second half of the year​ (WTA Group)​​ (Journal of Commerce)​.

    Freight rates have also surged, with spot rates on Asia-North Europe routes reaching levels not seen since mid-2022. General Rate Increases (GRIs) and Peak Season Surcharges (PSSs) are contributing to these higher costs, with carriers like CMA CGM imposing significant rate hikes​ (Flexport)​​ (WTA Group)​.

    In summary, the combination of increased demand, equipment shortages, and port congestion is creating a challenging environment for the shipping industry. These factors are driving up costs and causing significant delays, with no immediate relief in sight.

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