Container lines are cutting capacity on the Asia-East Coast South America (ECSA) trade to try and restore abysmally low freight rates, a sign that carriers genuinely realize that conditions on certain trades are now so poor that drastic measures are required, according to shipping analyst Drewry.

Spot freight rates have been both weak and volatile on this headhaul trade all year, but the last few months have probably been too much for the participating lines. Drewry's Container Freight Rate Insight reported that Shanghai to Santos spot rates fell to US$1,030 per 40ft container in September, down by 58% compared to January.

Imports from Asia into ECSA have been lackluster so far this year, with volumes down by 1.4% after eight months of the year according to Datamar. Drewry's rolling 12-month average for total Asia-ECSA volumes indicates that the trade will remain in deficit for the remainder of the year as it is currently tracking at around -2%, expected to end the year at closer to -3%.

Ocean carriers have known for some time that drastic remedial action was required on the capacity front, and the mid-year service restructuring program that split the trade into two major carrier groupings (MOL, Maersk and MSC on one side and CMA CGM, Hapag-Lloyd, CSCL and Hamburg Süd on the other) appears to be effective.

After initially adding more unwanted capacity on to a route struggling to cope with low utilisation and freight rates, the shake-up has since induced other lines offering a smaller operation to break-up.

Drewry predicts that freight rates on the Asia-ECSA trade are likely to stabilize following the suspension of the Panamax-sized service, but any improvement in pricing will likely only be gradual until demand recovers.