Too bad Darwin missed the advent of the cargo container. The evolution of species always seems to apply especially well to the liner shipping industry.
The most recent example is the dropping of two Asia/Europe services in the last 20 days by the CKYH Alliance and CSAV.
On June 21, CKYH carriers COSCO Container Lines, 'K' Line, Yang Ming and Hanjin Shipping suspended one of their nine loops between Asia and Europe
, the NE5. Then Monday, CSAV said it was dropping its Mare Nostrum loop between Asia and the Mediterranean.
The services are fundamentally different -- CSAV's is a standalone pure-Med loop, while CKYH's NE5 was the only one of its nine Asia/Europe services to call ports in the Mediterranean and northern Europe. The CKYH service also had the benefit of four lines filling its ships.
However, the unifying thread between the two services is the size of the ships deployed. The NE5 was the home for the CKYH carriers' smallest ships operating between Asia and Europe. At an average of 5,576 TEUs, vessels on the NE5 were far smaller those on the alliance's other services, which range from 8,162 to 10,038 TEUs.
CSAV's service, the only one in which it operated vessels to the Med or Northern Europe, employed ships averaging 4,720 TEUs, according to American Shipper
affiliate ComPair Data
With rates between Asia and Europe at dangerously low levels and calls for carriers to lay up ships to better align capacity with demand
, it's no shock these services were the first to go. Bigger is winning over smaller, evidenced by the rash of new vessels 13,000 TEUs and larger entering the Asia/Europe trade. Never mind the recent orders by Maersk Line and OOCL for more supersized vessels to come until 2014.
Two months ago, carriers were planning for 'rate restorations' that would bring revenue from Asia to Europe back to viable levels. Those plans have been postponed, or in some cases dumped, as a second half demand surge has so far failed to materialize. Global container demand is
growing -- maybe not by the heady double-digit figures of the early 2000s, but enough to bring the industry profits even as oil prices have inched up.
The issue, as American Shipper
has pointed out myriad times throughout late 2010 and the first half of 2011, is that minor capacity cuts through skipped sailings aren't enough. Consumers and shippers are being cautious in their dealings this year. In 2009 demand plummeted, causing a scramble for cargo and sliding rates. This year, it's a failure to manage capacity even as demand rises that has rates dropping.
For that, the liner carrier industry only has itself to blame.
In the meantime, the dropped services on the Asia/Europe route can be seen as the start of needed rationalization, or it can be seen more clearly for what it is: two services run with small ships that can't compete with the plethora of services operated with much larger ones.
The question going forward is which other services are at risk. It seems vessels with at least 6,000 TEUs of capacity are the minimum needed on pure Asia/Med loops (for context, Maersk and CMA CGM run an Asia/Black Sea service with 6,600-TEU vessels), while 8,000-plus TEU ships are the benchmark on the Asia/northern Europe trade.
Services with vessels smaller than that -- unless they can cycle cargo in multiple regions along the way -- will have a hard time competing with the unit cost savings offered by ships in the 10,000-plus-TEU category. ' Eric Johnson