Analysis of Shipping Lines’ Strategies in Response to Declining Freight Rates in Europe
The international freight market has entered a phase of significant transformation, particularly in the Europe and U.S. trade lanes. As a freight forwarder, we are witnessing first-hand the ripple effects of falling freight rates, which are reshaping the dynamics between shipping lines, shippers, and intermediaries. This blog explores how shipping lines are adapting to these challenges.
1. The Driving Factors Behind Declining Freight Rates
The decline in international freight rates stems from several interconnected factors:
- Overcapacity: Following a period of aggressive fleet expansion during the pandemic-driven demand surge, many shipping lines now find themselves with excess capacity.
- Weakened Demand: Economic slowdowns in Europe and North America, combined with geopolitical uncertainties, have dampened consumer demand and reduced trade volumes.
- Rate Competition: Shipping lines, eager to maintain market share, have entered a rate war, driving prices even lower.
- E-commerce Plateau: While e-commerce remains strong, its explosive growth has leveled off, reducing the demand for premium shipping services.
2. How Shipping Lines Are Adapting
To counter the impact of declining freight rates, shipping lines are employing various strategies:
Capacity Management
- Blank Sailings: Many carriers are canceling scheduled sailings to reduce available capacity and stabilize rates.
- Slow Steaming: By reducing vessel speed, carriers cut operational costs while also controlling capacity inflows into the market.
- Strategic Alliances: Partnerships between shipping lines, such as the 2M and THE Alliance, enable better route optimization and fleet utilization.
Faced with the continued decline in market freight rates, shipping lines are attempting to raise rates through short-term measures such as increasing blank sailings and reducing capacity.
According to the latest cancelled sailings tracker from Drewry, in the upcoming five weeks (Week 48, November 25 to December 1, and Week 52, December 23 to December 29), shipping lines have announced 70 blank sailings out of a total of 693 scheduled voyages on major East-West trades, including the Trans-Pacific, Trans-Atlantic, and Asia-North Europe and Mediterranean routes, resulting in a cancellation rate of 10%.
During this period, 50% of the blank sailings will occur on the eastbound Trans-Pacific routes, 27% on the Asia-North Europe and Mediterranean routes, and 23% on the westbound Trans-Atlantic routes.
In the next five weeks, the Ocean Alliance, THE Alliance, and the 2M Alliance have each announced 14 blank sailings, while non-alliance carriers have implemented 28 blank sailings.
Additionally, Drewry noted that contract freight rates on the Asia-Europe routes are currently under negotiation, creating pressure on carriers to increase spot rates. This has prompted shipping lines to initiate a new round of General Rate Increases (GRIs) in December.
