Asia-Europe Rates Bottom Out as Threats to Shipping Spread

You're now listening to the supply chain secrets podcast. The Ultimate Insider's Guide for All Days Ocean Shipping presented by Nigat.

Hello and welcome to the Supply Chain Secrets Podcast. I'm Rachit and I'm here as always with Lala Jensen. Good morning, Lala. How are you today?

Good morning. Doing great this time calling in from the Gambia, close by the Atlantic coast.

Very nice. It's a beautiful, sunny Monday morning in London, but it is November. You're less than a thousand miles from the equator now, so I suspect the weather is a little bit nicer where you are today.

Yeah, still around 30 degrees or so very quickly arising there as you get up towards the day. To be honest, I haven't really had much rain since I can't remember when. But there was a little bit of rain for one day up in Senegal. But since then, I don't think I've seen proper rain since I was in the Netherlands way back in July.

Oh wow. I would guess some of the places that you need to drive through, maybe that's an advantage not to have nice dry conditions, so transit some of these areas.

Deliberately timed this one to hit the dry season and not in the middle of the rainy season.

Absolutely. We're back to our normal Monday morning slot, and we've got a lot to talk about this week. We're going to cover disruption in the form of a tax on shipping. We're going to talk about the potential for a completely different type of disruption in the US. And we'll touch on container line services and consolidation.

But before all of that, Nas, I think you want to start on the market and the freight rates. Where should we where should we kick things off today?

Yeah, let's start off on the freight rates as we usually do to at least get a feel for how the market is behaving. And I would suggest we start out on the Asia Europe trades this time around. And given that we now have the ability to look at both the North Europe and the Met, I think we might as well have a look at both of these.

We have been talking here at this podcast for a long time on how the expectation was, and that was also reflected in the futures market, that this seasonal decline of rates would basically come to an end right around now. And that is basically also what appears to be happening. Rates have bottomed out.

You can argue compared to last week, North Europe increased a bit, increased a little bit. But when you look at the pattern here on the graph, I would more likely say the data shows we have bottomed out here. We should expect rates to begin to increase as we slowly gear up for the Chinese New Year peak season.

That's what the rates are telling us. As we've done sometimes, we also tend to at times look at the spread because that also shows us a little bit about what is the certainty in the market in terms of what goes on. And if we look at the Asia to North Europe spread here, it's hard to see on the graph, but if you run the numbers, I usually tend to look at the 10 to 90% spread.

And if we do that, what we see is a slight increase here the last week in terms of spread. Actually, the spread is now up to the level we saw back in mid-September, which is again commensurate with a little bit of uncertainty in the market, what is going on, and also matches up what we tend to see when there is a major turn in the market.

For the graph you're showing here, I think it's most evident around the peak we saw earlier this year, where we can also see at the moment where the market peaked, this is also where we had the largest degree of the spread. As people were uncertain, is this the peak? Is this not the peak? What's gonna happen?

So we're beginning to see the same. So that's another indicator telling us that we have actually turned the corner. Market has likely bottomed down. We can also look at the spread on the Asia Met, and here it's even more visible where we can see the uncertainty have become relatively large over the last few weeks here.

So bottom line, the Asia-Euro market, it has been declining since that unusual very early seasonal peak. But barring any other calamities in the market, we should expect as a baseline that this is it. This is the seasonal bottom, and rates should now begin slowly to increase going forward.

Okay, thanks for that. And since that early peak, both these trades have been behaving in a reasonably predictable manner, I would say, for week-on-week changes on seeing some of these changes coming in the market.

Yeah, it has been very stable actually. That there's nothing, let's call it, exciting about this. And given how the markets have been the last seven years, I think non-exciting is exactly what both shippers and carriers are looking for.

I think people don't mind a bit of quiet findings.

And then let's shift over just and have a look at what happens over on the three Pacific trades that are covered by the NIFI, so both the U.S. West Coast, US East Coast, and the US Gulf Coast. Interestingly enough, here also it's not very exciting when you look at the traditional two trades, so East Coast and West Coast, they continue this slow and steady increase that we've seen for quite a long time.

The exciting part actually remains, as we also talked about last week, the Gulf Coast. Gulf Coast rates have become phenomenally volatile, and we saw that in the last week as well, compared to how tightly they usually were linked to the U.S. East Coast. So we still do have a bit of uncertainty over what exactly is going on here at the Gulf Coast level.

Overall, as we talked about before, Asia Europe has bottomed out and now it has to increase, linking up to the usual Chinese New Year. For the Pacific, it's more a matter of we should expect that we are reaching an overall peak here. We will not see a seasonal decline now. We are getting too close to the wrap-up towards Chinese New Year, so we would rather see the high rates bridge over to Chinese New Year.

It's debatable whether it can stay at this high level. It's more likely they will begin to seep somewhat and get down to what in reality is a Chinese New Year peak, but it's not going to look like a peak because we've come from this high level and we'd rather seep down to it. And you're going to say what we usually see on, especially a trade like the Trans-Pacific, if rates are high for a sustained period of time, more services get started.

And that tends to also then dampen the rates. And just to give a tangible example, Zimp have just announced the launch of a new Trans-Pacific service. So they're now launching one that goes just from Shanghai and Shaman over to Los Angeles, for example. And this is the pattern we tend to see, especially on the Asia-US-West Coast trade, where the sailing distance is relatively short.

You don't need that many vessels to do it. So that's another indication why usually when rates are high here for a sustained period, we will see the injection of more services and the new Zim service is an example of that.

Thanks for that, Lars. You preempted the question I was going to ask Ben, because I think we've been talking about where is the kind of ceiling for these trades for weeks now, and they just seem to be inexorably heading higher and higher, albeit at a much steadier pace than they were earlier in the year.

And so I was very interested in your view as to what would happen now as we reach the end of the year and we head into that pre-change new year peak. It's interesting to think that they'll remain high, but that's a great point about the old adage to cure for high prices with high prices and people bringing in more services to effectively capitalize on that and therefore increasing the capacity and maybe bringing a bit of rate relief as that happens.

It's a panel we've seen unfold multiple times since the pandemic broke out. Every time we get these very high rates on specifically the Asian US West Coast service, we see a number of new services spring up. And every time the rates then come down, quite a number of these small services then disappear again, which is entirely logical.

It basically goes to show that there is no real barrier for getting into the Pacific with new services. But what's keeping small and niche services from coming in is whether or not the rate levels are profitable.

I think that covers us on the market areas, and that, as you say, no huge drama on either of those major trades this week, which is which is maybe good. But where we do have more serious situations and the potential for the disruption, of course, has been some of the attacks on shipping that we've seen, and where you wanted to pick out some of the areas where we have hot spots.

Yeah, before I pick out the hot spots, let's start with the positive news. The Red Sea continues to be the positive story. The latest announcement in terms of continued normalization actually came from MSC, who has now normalized their Australia to Europe service to also go with ISOS. So of all the different trouble spots we have out there, actually the Red Sea continues to be the positive story here, continues to normalize.

Now that was the positive part. Now we come to the challenging parts. Homos continues to be highly challenging. It continues to see multiple attacks basically daily. It depends a little. I tend to use the UK MTO data, which at least are credible data that we have out there. If you were to follow the Iranian news sources, they tend to report more attacks than what we see from UK MTO.

Objectively speaking, I cannot know whether the Iranians are right or not, but of course the Iranians have a propaganda perspective in trying to make the attacks look like more than they are. But even disregarding the Iranian data, there continue to be multiple attacks. Latest yesterday, a tanker was hit by two projectiles, and that was actually in the upper Gulf, close to Saudi Arabia.

So it has now become normal that ships are also attacked inside the Persian Gulf, unfortunately. Seen from a very narrow perspective of container shipping, these attacks appear to be mainly directed at tankers, not at container vessels. The latest container vessels we saw attacked, they were the ones trying to transit the Strait of Walmus, but they're not getting attacked inside the Persian Gulf.

But even if vessels are not being attacked, the shift to the land bridge, which is what everybody is now using. So you're discharging, say, Quarfa Kahn, for gyra, you're moving overland over to the Gulf side and then get heated on. There is a limit as to how much capacity is available. And those bottlenecks are now manifesting themselves to an issue where most, for example, have now begun to restrict some of their booking acceptance for cargo to Quarfa Khan for gyra, and also some of their booking acceptance to then subsequent locations in the upper Gulf countries, simply because there's a limit as to how much cargo you can physically move on this overland bridge.

So for the straight-up, almost sadly, it's I was about to say business as usual, there has been no improvements whatsoever.

But for shippers accessing that region with the kind of limits on the overland bridge, are there other options, or are we just saying that there is a kind of headline limit on the amount of cargo that we can get? I can't imagine there's many other routes options for that region.

It depends a little bit on where you are. Let's keep in mind that for cargo going to the Persian Gulf ports of Saudi Arabia, that of course can be then routed overland from the Red Sea ports in Saudi Arabia, but you cannot go from the Red Sea ports in Saudi Arabia to the actual Gulf countries. If you're shipping to UAE, you don't really have much choice.

It's the land bridge ship. Same thing basically for Qatar to Borea. For Kuwait and Iraq, there is another option because you can actually get cargo discharged at the ports in eastern Turkey and move it overland. So there's a little bit of a siphoning off of cargo going up there. So the other overland options depends a little bit on where you are.

But if you are UAE Qatar, there's not really much choice.

Okay. And speaking of moving kind of further north, I think you wanted to talk about the Black Sea as well and attacks in the Black Sea.

The reason we need to increasingly talk about the Black Sea is that the conflict seems to be expanding. And we talked about it here on the podcast, I think it was about a month or so ago, where there were a few container ships that were suddenly hit in attacks in the Black Sea. At the time, that was a container ship from MSC, and it was a container ship from ACON lines.

It prompted MSC at the time to cease booking acceptance into Russian Black Sea ports and for Akon Lines to cease acceptance into Russia overall at that point in time. Now, unfortunately, last week we saw a 1300 TU container vessel operated by Zim getting attacked by seagoing drones. Actually, that's not live anymore, but there's video footage of one of these drones as it is approaching the ship and slamming into the ship.

The ship subsequently sank. The crew was rescued, fortunately. The reason why we should be concerned about this is not a ship that was going to neither Ukraine nor Russia. This was a ship that was going from Hyper and then going into Constanza in Romania. This was hit off the just outside the territorial waters of Bulgaria.

This fits into a pattern we have now seen for several months. The Russia-Ukraine war is slowly migrating into the wider Black Sea area where the combatants seem to be targeting shipping interests that they see not belong to but servicing the other part. And I think that is a very concerning development.

Whether this will continue, we do not know. We can see CMA, CDM has already announced an increased war risk surcharge for cargo going to and from the Black Sea. And we should remind everyone here that we do have major container ports in both Romania and Bulgaria servicing a significant part of Eastern Europe and the Balkans through those gateways.

So if this is a sign that the conflict is widening, that is actually problematic in more than just a regional context, because there are some of the lines that have Asia 2 and LACSE services operated by very large container ships. So this is something that warrants monitoring. Also, in this context, I would like to point out again, if we are objectively looking at what we factually know for sure and what we don't know, we know the vessel was hit by sea-going drugs, we know the vessel sank, we know it was operated by zip.

But therein ends the firm knowledge. There is speculation by security services out there that these drones might have been Russian-made, they look like a Russian design. That of course is not a guarantee. It is speculated that this might therefore be a Russian attack, but then again, we do not know. And since we are in the speculative regime, what we factually don't know is this actually a spillover of the Russian-Ukraine war?

That is the one that looks the most likely, given that it's in the Black Sea and ships are being targeted as part of that war. But whether this is a spillover effect of another actor targeting Israel as a spillover from the war with Iran or a spillover of the events in Gaza and Lebanon, we factually don't know.

And from a shipping perspective, that is really bad news. Because that means we don't know the exact extent of what is the nature of the threat. Was this a one-time affair? Is it part of something larger? Could we expect more? Could we expect this to be over? By now we simply don't know.

So another situation where we just need to watch closely and make an assessment on, I guess, as and when or even if we start to be able to know some of the reasons behind this and to see whether this is, as you say, something which is going to be larger or an isolated event.

Exactly. And again, let's remind everybody that the baseline is we do not at this point in time expect suddenly all the big container ships are going to be attacking the Black Sea. That would not be a realistic assessment. But we're also at a point where there is now a chance that is different from 0% that this might actually be the direction we're heading in, especially if we look at the geopolitical turmoil that we've witnessed over the last many years.

So if, and I really stress the if here, but if we get to a point where some of the major lines feel compelled to retract their direct services with large vessels into Bulgarian and Romanian ports, this would then create a spillover effect in a significant part of the Mediterranean because it means the cargo that today goes through those would likely then end up in transshipment hubs, transshipment hubs either in Egypt or in Greece.

Some of it might then be piped up through the Adriatic seaports. So this will have a wider ramification on the eastern Mediterranean operations should such a situation develop.

Okay, thanks. Anything else to watch out for? I know there was some piracy as well, which we don't talk about often in the Gulf of Bay, and they're not directly related to container shipping, but something I think you wanted to mention nonetheless.

Exactly. It's simply because, again, as UK MCO, and uh a few days ago they were warning of an active pirate group operating, and that group definitely got active. They have now hijacked and taken over a fishing vessel. And for those sitting up and say, I don't care, I'm shipping containers, I'm not moving fish on a fishing vessel.

I would like to remind of the prehistory we had in that region when piracy was at its highest there 15 years ago. This was actually the modus operandi of some of the pirates. They would hijack fishing vessels, and when we talk fishing vessels, it's not a small wooden boat with three guys on board. It's usually large, almost factories.

And back then, hijacking fishing vessels was a step to then use the fishing vessels as a base of operations and therefore widen the reach of the pirates in the region. So it's also a situation that warrants, those are watching.

Yeah, absolutely. And I can't help but think we don't talk about this maybe enough as an industry, I think, actually. But when you talk about all these threats for shipping, of course, there's a big human element to this as well in terms of the seafarers routine over the years with disruption and the pandemic and other things, that seafarers really having quite a rough time.

So when I hear about these attacks, I can't help but always think about the seafarers and the real danger in some cases that some of them are in.

Yes, and that is clearly a concern. There's also a number of facets to that one. If a zone is a designated warser, then at least under the International Labor Convention, the seafarers actually have the right to say, I do not want to be on the ship when we're going to go into these waters. That's a right that they have.

That all sounds very good. The problem is then the real world. You might have that right, but what if hostilities erupt in a zone that's not designated a war zone? So you're simply trapped there when it happens. Then you have no chance to get off. That is one part. And another part that's also a very real part.

You may have that right, but a lot of seafarers come from countries that are relatively poor. And if they say no, I don't want this, sure, they might be able to get off the ship, they get sent home, and then they don't have a job. And the family back home is dependent on that salary. So whilst on paper you do have that right to say no, it can in many cases be questioned whether that right exists in real practical terms.

So, yes, for the seafarers, this is a problem.

Absolutely. Absolutely. And thinking of the kind of human element behind this as well, that's a kind of neat transition for us for disruption risks of a different type. And we want to talk about the potential for port strike from the US West Coast and what's happening in that situation there.

Yeah, usually when we talk port strikes in the US, we're talking either West Coast, where it's the ILA union, sorry, East Coast, it's the ILA union, or West Coast, that's the ILWU. And usually we only talk about it every six years because that's the duration of the agreements. And on the West Coast, the QAn agreement runs until 2028.

So stay tuned for the podcasts as we're getting into second half 27, because that is going to be an interesting one as well. So why would we bother talking about it already now? The reason we talk about it is that there is 250 watchmen that apparently are negotiating a subpart of a contract for themselves.

This is not right now going very well. They had announced a strike originally with a deadline yesterday, November 1st. This was then postponed to tomorrow, November 3rd. And before anybody says let's just 250 watchmen, how could that be a problem for overall Los Angeles Long Beach Port? Because the union have a very strong tradition of having the mantra, they do not cross picket lines.

So even though it might just be 250 guys, if five of them show up down there and say this is a picket line because we are on strike, chances are that the Steve Doros and the other union workers will not cross that picket line, and therefore it could actually have an impact on operations. For now, let us hope that they get it sorted out before tomorrow, because with all the other disruptions that are going on, having a standstill at just some of the terminals in Los Angeles Long Beach for even just a few days is going to create significant bottleneck problems that really no one needs right now.

That's exactly what I was going to say. The last thing that ship has made and I think we saw it just a couple of years ago. Even two days, as you say, a disruption can cause a huge issue. So I guess we'll be watching that tomorrow and hoping for for the best in that situation and and not for that to deteriorate any further.

Should the worst happen, is there anything that that shippers can really do about this or they just have to kind of fingers crossed and hope that their negotiations will go well and there will be no industrial action?

Is there anything they can do to prepare? Not really. The only thing you can do to prepare is if your cargo is already there, get it gated out or get it gated in before the deadline. That's basically the extent of it.

Well, fingers crossed that it goes well. We're getting, I think, toward the end of the news for this week, but on the structural side of the market, you also wanted to talk about some of the new services and some of the acquisitions that have been going on in the market over the last week.

Yeah, we're slowly beginning to see a ramp up of acquisitions, and I think this is a harping of things to come in the coming years. This doesn't involve the major carriers, but actually some of the smaller to mid-sized players. So in this week alone, we've now seen two buyouts. We've seen Voluda line buying Samskip.

It should be remembered that part of Samskip services were already sold off earlier in 2026. But that is one another merger here between some of the mid-sized carriers. And what I personally, from a historical perspective, find interesting is Conship Italia buying the line terrace. The reason why I find that interesting is Conship Italia used to operate a container line.

Conship is actually what it was called back then. This was then sold to Canadian CP ships way back in 1997. CP ships subsequently bought out a lot of other carriers. CP ships got bought by Hapak Lloyd, so they're now part of Hapak. And now Conship makes a return by buying Taros lines. So having been out of the line of business for 29 years, they're now making a re-entry.

Interesting, as you say, absolutely from a historical perspective. And yeah, we've talked, haven't we, the last few weeks with all of the new building orderings about the potential for consolidation in future years? And as you say, it could be a precursor when you see it happen in the medium um sort of size segment part of the market, part of the market birth.

Yes. Okay, I think that covers all of the news and everything that we wanted to talk about that was moving the markets for this week. Lars, on a personal note, you're uh travelling again, I think, today. Where are you off to next in your journey?

I'll be continuing south, heading down into first the Casamanche region of Senegal, which is south of Gambia, then continuing into Guinea-Pissau and Guinea are the next staking point here. Fantastic.

I feel as there could be maybe a book at the end of this journey. I know a lot of people are following your blog, and we talk about this every week, but I'm sure there's plenty of experiences that you haven't communicated yet and the fascinating things happening.

Absolutely. And people can, of course, at all times follow the live tracker on the van on the tracking site on my Synchro Sally Voyage blog. But if you want to see some of the other experiences that are not directly shipping related, Instagram is the place to go for Synchro Sally Voyage.

There we go. For everyone on the get on your social media and check out what Lars is up to. All right, Lars, thank you very much. Faculting again Gen 3 container shipping this week. We will be back, as always, next week. Until then, thank you everyone for listening and have a great week.

Thanks for listening to the Supply Chain Secrets Podcast, presented by Nightjack. Be sure to subscribe on your favorite podcast app.

Asia-Europe Rates Bottom Out as Threats to Shipping Spread

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