This Route Has Become the Most Profitable Route for Shipping Companies

The transatlantic route has overtaken the transpacific west-west route as the most lucrative trade route for shipping lines following the recent sharp drop in ocean freight rates. Liner companies are redeploying ships to the more lucrative route.

Alphaliner, a well-known consulting agency in the industry, said recently that through data analysis, it calculated the revenue per nautical mile on the main east-west trade routes, of which the transatlantic route is far ahead and has become the new "most profitable route".

The latest Shanghai Export Containerized Freight Index (SCFI) fell 240.61 points to 2072.04 points, a weekly decline of 10.40%, a 15-week losing streak, and a drop of nearly 60% from the historical high of 5109 points at the beginning of the year. Most of the main routes fell by more than 10%.

Shanghai-Los Angeles rates fell 11% or $473 to $3,779/FEU. Shanghai-Rotterdam and Shanghai-New York rates fell by 10% and 9% to $6,027/FEU and $7,701/FEU, respectively.

By comparison, the current average freight rate on the Rotterdam-New York westbound route is $7,525/FEU, which equates to about $2.18 per nautical mile, a difference that may have led carriers to redeploy larger ships to east-west container routes.

"This may explain why COSCO is replacing the 8063TEU OOCL Shekou with the larger 13092TEU container ship Cosco Harmony on the Ocean Alliance TAT2 route, although the Nordic-US East Coast route also requires additional capacity," the analyst noted. to deal with the impact of port congestion.”

The TAT2 route calls at Southampton, Antwerp, Rotterdam, Bremen, Le Havre, New York, Norfolk, Savannah, Charleston and other ports, deploying 5 container ships with a capacity of 8000-9500TEU.

The deployment of the "Cosco Harmony" represents a change in capacity on the transatlantic route, and so far, ships of 12,000-14,000 TEU can only be used as additional capacity to solve the crisis of congestion. More capacity is expected to be added to the route in October.

At the same time, Alphaliner also warned that deteriorating trans-Pacific terms of trade could hit independent carriers far more than alliance members because of their greater reliance on chartered vessels and spot freight rates.

“While average earnings of $0.60 per nautical mile are still high compared to pre-pandemic levels ($0.28 in January 2020), rapidly declining spot freight rates have a significant impact on new entrants to this route and in the charter market. A major problem for non-alliance carriers with expensive ships.”

“These carriers are often very reliant on the spot market. The main reason for the decline in spot freight rates is weaker demand for cargo. The alarming rise in energy costs and high inflation will obviously further impact consumer spending,” Alphaliner said.

Alphaliner believes that under the current container shipping market environment, the freight rate of the US-Western route will continue to be under pressure.

It also warned that the drop in freight rates on the trans-Pacific route could hit non-alliance liner companies far more than alliance members, because the former have a higher proportion of charter ships and are therefore more affected by spot rates.

In addition, a report recently released by HSBC Global Research believes that after two years of unprecedented rise in the container shipping market, driven by excess capacity, freight rates are expected to bottom in the 2023-2024 downward cycle.

The agency further predicts that in 2023-2024, the container shipping market will enter a downward cycle, profits are expected to drop by 80%, and the profitability of liner companies may bottom in 2024.