Goldman Sachs Links Weak Rates to Decline in Bunker Prices as Asia-Europe Spot Rate Plunges Below $250

Rates on the Asia-Europe route hit $243 per TEU late last week.

Asia-Europe spot rates have continued a downward plunge, falling below $250 on the Shanghai Containerised Freight Index, as the market battles weak demand, low bunkers prices, and excess capacity, JOC reports. 

Attempts at general rate increases a couple weeks previous were reportedly ineffectual as rates slid further to hit $243 per twenty-foot-equivalent unit (TEU) at the end of last week.

Another measure, the China Containerized Freight Index, also reportedly shows that rates are 30 percent lower year-over-year. 

Meanwhile, the low cost of crude has purportedly lowered breakeven costs significantly, with Goldman Sachs having estimated that the breakeven point for a round trip from China to Europe is now at $900-$1,000 per TEU depending on the size of the vessel.

"We attribute the weaker rates year-to-date to the 37 percent decline in bunker fuel prices year-over-year, with lower fuel surcharges, and liners' reluctance to reduce the number of services while introducing new larger ships as each liner replaces their smaller, original vessels with larger ones on the route," the investment bank said in a research note.

Goldman Sachs said that it expects the second quarter of 2015 to to be the low point for the Asia-Europe route, though it expects profitability to return during 2016.

The industry's move towards larger containerships was noted to already be exacerbating the issue of overcapacity, a situation that could be compounded as 630,000 TEU of capacity in 10,000 TEU sized vessels is scheduled to hit the water throughout the rest of 2015, making it harder to cascade existing smaller ships into other trades to make way for the larger vessels.

Last week Maersk Line predicted that small-mid-size players would simply be squeezed out of the market.

It is not only the box markets suffering from low rates, and last month it was predicted that waning demand from China would send dry bulk rates crashing, a problem which would require the industry to take responsibility for addressing overcapacity.