Sinking Schedules & Softening Rates: Far East–Europe Lanes Face Post-Typhoon Backlogs

The Far East Asia to Europe trade corridor experienced a slight cooling in freight rates this week, even as severe weather-induced bottlenecks and geopolitical diversions continued to strain vessel schedules.

Following weeks of upward pressure on container spot rates for the Asia-Europe routes, the rates are now starting to show signs of weakness. As shown by benchmark indices, rates for containers shipped from Shanghai to Genoa declined by 5% this week to approximately $5,988 per FEU, whereas the Shanghai-Rotterdam route declined by 1% to approximately $4,824 per FEU. The decline in rates is mainly due to the added capacity for vessels in the market when demand starts to soften after the first summer peak period. Carriers have arranged for four blank sailings in the Asia-Europe route for next week, which is one more than last week.

Although the levels might be decreasing, the problems that exist at the point of origin port are extreme. The entire logistical chain in Eastern China is struggling to cope with a vast backlog of cargo that has been generated due to Typhoon Bavi. Even though the terminals in important ports such as Shanghai and Ningbo have already reopened, the closure has trapped about 2 million TEUs of shipping capacity in Northeast Asia. Shipments are now experiencing waiting periods ranging between 72 and 144 hours in Shanghai and Qingdao. Carriers are making schedule changes in order to save time, and thus the vessels are skipping ports and cargo is being rerouted.

At the heart of such delays is the use of the Cape of Good Hope route. As the Red Sea is now out of reach owing to increased tension in the Middle East, the additional time for shipping around Africa means that Asia-Europe journeys take an extra 10 to 14 days. Such a circuitous route consumes huge amounts of capacity worldwide and contributes to equipment shortages in China’s ports.

Short-Term Future Outlook

Regarding early August forecasts, one may expect stability or a decline in rate levels on the Asia-Europe lane due to the subsiding impact of early peak frontloading and increasing carrier capacity. However, this does not mean that shipments will become easier. The cumulative impact of the backlog created by Typhoon Bavi and Cape of Good Hope detours will guarantee historically low levels of schedule reliability. It will be necessary for European importers to continue to allow for an additional two to three weeks in the procurement cycle.