Why the Asia-Europe Trade Matters to You

Date:  June 26, 2015

Source:  Laufer Group International, Ltd. 

Sometimes it's difficult to break away from the day to day, especially this time of year. Summer vacations, kids are out of school, importers are bracing for their fall peak season, and exporters are competing daily to sell their products in the global marketplace with a strong dollar. But outside of all of that, the global shipping marketplace is constantly in flux - and changes in other markets (capacity, alliances, carrier financial health, etc) are important to gain insight into.

One such development is in the Asia-Europe trade which is one of the largest trade lanes in the world by FEU throughput and vessel tonnage. What may be shocking to you, because it is to us, is that the all-in ocean freight rate from Shanghai to any port in North Europe today is approximately $400/40' container. Yes. That's all-in. It's even less for the back-haul Europe to Asia trade. Despite carrier attempts to impose General Rate Increases every month (another one is scheduled for July 1 at $1000/40'), over capacity has clearly had the upper hand and is driving down rates to unprecedented levels in that trade.

With the Asia-North American trade lane slightly more stable, why does this matter to you?

Because we've seen this pattern before (remember 2009). Over capacity in a major trade lane leads to erosion in container pricing, which leads to poor carrier financial performance, which leads to the creation of alliances, which leads eventually to reductions in capacity and cuts in service levels, and in many cases an increase in rate levels. None of which benefits any of us as we all seek predictability, flexibility, visibility and control of our supply chains.

We are many months away from that impacting us in our core trade lane of Asia-North America, if it does at all. So no need to cancel those summer vacations or change your peak shipping strategies. But paying attention to what's happening in the periphery is a good idea.

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