Signs of an Asia-Europe Rate War: Demand is Firm, Capacity is Short, Yet Rates are in Freefall

A new Alphaliner analysis reveals a paradox on the Asia-Europe trade: a shortage of vessel capacity and rising demand are met with plummeting spot rates, raising suspicions of a rate war among major carriers.

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Fresh evidence suggests a rate war among carriers on the Asia-Europe trade may have begun, after an Alphaliner analysis published today (Sept. 22) indicated that available capacity to North Europe and the Mediterranean is barely sufficient to meet demand, while spot rates are in a continuous downward trend.

According to the maritime consultancy, a total of 31 Asia-Europe services would require a fleet of 461 ships to maintain their weekly schedules. However, its research shows that only 425 vessels are actually deployed on these routes.

“This means that trade is currently missing 36 vessels that would be needed to guarantee ‘uninterrupted’ weekly sailings on the 31 services,” Alphaliner wrote. Essentially, this is equivalent to about 500,000 TEU of slot capacity being withdrawn from the market.

Under normal shipping industry economics, strong demand combined with tight capacity should push freight rates higher. The latest data from Container Trades Statistics showed that July shipments from the Far East to Europe increased by 9% year-on-year. Eytan Pusey noted in a podcast that this is “quite solid demand, because we don’t see that in GDP in Europe at the moment and also with all the challenges of going around Africa and not going through Suez.”

But the CTS price index, which measures both spot and contract rates, fell significantly over the same period. “This time last year the Far East-Europe freight rate index was 181, and it’s at 96 now – almost half the freight rate,” Pusey added.

Alphaliner: "Clear Signs of a Rate War"

Alphaliner suggests that the fall in rates, which has been particularly severe in recent weeks, is evidence of aggressive competitive pricing strategies from the carriers.

“Despite the fact that the Red Sea crisis remains far from resolved, and that there is a continuous lack of tonnage, this effect on freight rates has completely disappeared,” the report noted. “Spot rates from Shanghai to North Europe have declined 45% over the past 10 weeks, with double-digit decreases in the last three weeks.”

“This clearly hints at a rate war between some of the major operators,” the report concluded.

Another Perspective: Has the Market Bottomed Out?

However, Lars Jensen, CEO of Vespucci Maritime, suggests the market may still have further to fall.

“Quoted spot rates on the SCFI into Northern Europe are now marginally below the low point in Spring, which was the slack season after Chinese New Year, which was the lowest we saw in the market in 2023, and above the low point we saw in December 2023, just before the Red Sea crisis,” said Jensen.

“But it is not quite true that we are completely back to pre-crisis levels, because if we remember back to 2023, Asia-Europe spot rates actually bottomed out somewhere in October 2023. But by the time we came to December they had actually grown 50% because carriers were already in the process of pushing through rate increases just prior to the Red Sea crisis emerging.”

“So of course now is a lot weaker than what we have been used to over the last year and a half, but it’s not – at least at this point - a market where the bottom has completely dropped out,” Jensen explained.

The capacity shortage on the Asia-Europe routes also differs significantly between the alliances, with the Ocean Alliance being the most affected, while the Premier Alliance and Gemini Cooperation have fewer issues.

Alphaliner said shippers using Ocean Alliance's Asia-North Europe NEU7 service, operated by Evergreen vessels, are the hardest hit. “Ocean Alliance faces the biggest challenge to procure tonnage and its Evergreen-operated Far East-North Europe NEU7 is the worst hit.”

“The service would need 14 ships to maintain weekly sailings, but it currently has a fleet of only eight vessels, including four recent ‘Ever M-class’ newbuildings of 15,372 teu,” the report noted.

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