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Oversupplied Asia-Europe Ocean Trade Readies for two December Rate Hikes

Ocean carriers on the Asia-Europe trade route are implementing two rate hikes in December to boost prices before annual contract talks despite excess capacity hampering rate increases.

Carriers are aiming for FAK rates between $1,750 and $1,800 per FEU on Dec. 1 and between $2,000 to $2,200 per FEU (North Asia to North Europe) and $2,700 to $2,800 per FEU (Asia-Mediterranean) on Dec. 15.

However, these FAK levels surpass current spot rates. The surplus capacity is widening the supply-demand gap, making rate increases challenging. Carriers face pressure to elevate spot rates as they influence annual contract levels. Some carriers are extending annual contract terms to strengthen their position in negotiations.

Drewry estimates a 60% fall in combined spot and contract rates in 2023 and an additional 33% in 2024, resulting in an expected combined EBIT loss of $15 billion in 2024 for the container shipping industry.

Despite a nearly 13% YoY increase in volume from Asia to Europe in Q3, there is a growing gap between supply and demand. BIMCO forecasts 2-3% growth in Europe and Mediterranean import volumes in 2023, with an estimated 12% increase in container shipping capacity in 2023.

How Legacy Navigates the Supply Demand Gap

As we move into December, we’re monitoring rates resulting from excess capacity and fluctuating demand on these global ocean lanes. Our focus remains on adaptability and strategic collaboration with our clients so we can secure levelly priced capacity into 2024.

– Russ Romine – VP International Transportation

Learn more at the Journal of Commerce.

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