From previous facts, we can easily find a supply side problem for the two new alliances:
should they draw larger ships from Eur. to the Med.?
For example, the fleet Maersk currently deploys (AE12/Phoenix) is to a similar size with Yang Ming. Should the Gemini Alliance pursue higher operational efficiency by drawing 17000 TEU+ ships from Eur?
Similar question holds for the Premier Alliance members, though they can rely more on MSC. Also, there may be 3 more 24000TEU ships to be delivered to OCEAN Alliance members and 3 for Hapag-Lloyd throughout 2025.
2. Are the liners making the most out of 2024?
From Figure 2, we can easily tell that utilization in 2024 is much better than that in 2022.
Even
when freight rate dropped in a manner like 2022
, the utilization rate was almost no lower than 90%.
Since FAK rate dropped fast in September and October (traditional slack season), some European liners cut off PSS by around 90%, which has always been the key contributor to their financial result. Not to mention Eur. service has been its traditional backyard.
It is more interesting to see the freight rate market outperforming some European liners’ prospects not once but twice (beating expectation-chart published by the liner in early 2024 and Q3).
In August, it expected the Eur. rate to drop continuously, but it broke its own expectation by rising FAK rate in mid-October. We won’t go any further, but the market can already see liners’ comparative results in Q2~Q3 reports and soon enough for Q4 reports.
For now, due to a rather decent export and MSC breaking the negative cycle in October by blanking Lion service continuously, the liners are pushing the FAK market to bargain a higher long-term rate for 2025. So, we believe most liners have taken the special chance in 2024 brought by a black-swan event.
3.What do we think about 2025?
We believe that the utilization of COGH instead of Suez Canal will continue throughout 2025. In extreme cases, the conflict will extend to the Strait of Hormuz.
We cannot elaborate the argument too far, but the efforts the current U.S. administration has taken very recently may diverge from the ideas new administration members have always been proclaiming. This divergence also stands for Russia-Ukraine conflict.
Secondly, as we have mentioned in our reports throughout 2024, we believe that COGH issue gives all liners a common ground, which may matter more than simple supply side issue.
COSCO and MSC have already deployed their 17000+ TEU fleets on trades such as Middle East, ISC and even U.S. West Coast.
For the demand side, we believe that there may be some divergence between the two key East-West Trade:
1. Due to recovering consumer confidence and further easing monetary policy, our baseline assumption for Europe import demand is a similar size to that of 2024. Depending on recovery extent, it may even show steady increment YOY.
Interestingly, Europe PMI has been bleak since 2022, but it didn’t stop a decent trade in 2024.
2. U.S. import may show further complications. It has shown serious cargo rush since July 2024. The reasons include but not limited to East Coast Port Strike, further tariff under the new administration.
However, the consumption has also been strong in the U.S., reflecting in the steady inventory-sales ratio.
Also, the consumers have sticked with a shopping habit consisting of a higher percentage of goods.
So, we believe there may be some slackness due to the current cargo rush in H1 2025, but as we get closer to H2 2025, the demand may get better. Of course, we believe it is hard to estimate the exact time for importers to adjust strategy.
Far East - U.S. freight rate should be considered with a much larger service number (YOY), and a much higher freight rate (YOY). We don’t bother with the exact number here.
