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Intra-Asia Routes Troubled with Slowing Demand and an Oversupply

Growth in trade and cargo volume in intra-Asia is slowing down

As economic depression continues into the year in major East-Asian countries such as China, South Korea, and Japan, cargo volume in intra-Asia is leveling off. According to the Japan Maritime Daily, the cargo volume in intra-Asia increased by only 1.5% to 14.37 million TEU and this year’s total up to July was 8.56 million TEU, 3.4% up from last year.

Besides, as China disclosed its GDP growth as 6.9%, the country is expected to keep its GDP growing at below 6%. This leads to the forecast that trade growth in intra-Asia will slow down further, which will lead to a slowdown in the cargo volume in intra-Asia, too.

More vessels supplied to intra-Asia

Alphaliner forecast that the vessel capacity added to intra-Asian routes was 390,000 TEU as of the end of May, up 22.6% from the same quarter of last year. In the first half of the year, new services were created for 33 new loops (with 98 vessels) owing to falling oil prices, and the upsizing of ships is briskly under way.

Average container ship size on main trade lanes: three scenarios for 2020
Average container ship size on main trade lanes: three scenarios for 2020 (source: OECD/ITF)

If we look at the vessels supplied to the routes in intra-Asia in the second half of the year, we see that 230 more newly-constructed vessels will be delivered by the end of 2015 as compared to 2014, while 150 newly-built vessels will be delivered by the end of 2016 as compared to 2015. Besides, this year will deliver 79 small and medium-sized vessels that are 1,000 to 3,000 TEU, while 2016 will built 75 ships of the same size.

Vessel cascading accelerates the growth of vessel capacity

Another cause for the growth in vessel capacity is the increased cascading from European routes → North-American routes → Intra-Asian routes and North-South routes, which happens from those ultralarge vessels of 10,000 TEU and above being continuously assigned to ocean routes. According to the Japan Maritime Daily, starting from the middle of the year, a series of 4,000 TEU vessels have been deployed to the routes in intra-Asia.

Especially with the completion of Panama Canal expansion approaching in April 2016, we are curious how the existing Panamax container ships will transfer to other routes. The Asia-North America routes have about 160 Panamax container ships operating via Panama Canal, most of which are expected to be replaced with large vessels of 8,000 to 10,000 TEU from April 2016. The Europe-North America routes have 238 Panamax vessels operating via Panama Canal, most of which are going to be replaced with 8,000 to 10,000 TEU vessels. Accordingly, starting in April 2016, those surplus Panamax vessels from Asia-North America and Europe-North America routes will be transferred to the routes in intra-Asia.

Market to remain sluggish with demand slowing from depression

The routes in intra-Asia are suffering from an extremely bad business, as they are grappling with the adversities of demand slowdown and intensifying oversupply caused by the depressed economies of China, South Korea, and Japan. If we check average shipping rates for major sea routes up until this October, the average freight rate was 137 dollars/TEU for the China-Japan routes, 171 dollars/TEU for the China-South Korea routes, and 199 dollars/TEU for the China-Southeast Asia routes, registering price drops of 49.8%, 8.6%, and 14.6%, respectively.

Since the routes in intra-Asia are not so likely to see greatly increased demand, it is likely to further intensify oversupply while sluggish business is expected to continue.

Author: Jeon Hyeong-jin, Shipping Market Analysis Center Director
Source: KMI Shipping Market Trend Focus, No. 274