26 Jan

Trans-Atlantic growth slowing

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Although trans-Atlantic volume will likely rise this year, it will slip down the ranks of the world's busiest container trades.

The trans-Atlantic continues to slide down the container route rankings and it’s unlikely the new US administration will give it the boost it needs, Drewry Shipping Consultants says.

Traffic on the headhaul westbound leg likely will post an increase of a little more than 2 percent for 2016 even after a “recovery of sorts” in the second half of the year. Total two way trans-Atlantic volume will top 5 million twenty-foot-equivalent units in 2016, but in the coming 12 months the route is likely to be overtaken by the Asia-South Asia market as the fourth-largest deep-sea container trade lane after the trans-Pacific, Asia-North Europe, and Asia-Mediterranean.

Shipments from Europe to North America grew 2.5 percent in the first 11 months of 2016 to 2.9 million TEUs, a sharp drop from growth of 8.4 percent and 6.4 percent in 2014 and 2015, respectively, that is symptomatic of plateauing consumer demand in the United States.

“Given the rapidly strengthening dollar against the euro and the British pound, carriers might well have expected more from this trade,” says the London-based consultancy.

The eastbound trade remains weak, with volume through November slightly down on the first 11 months of 2015 as a strong dollar and subdued European demand is stifling a trade that hasn’t seen any real growth since 2013.

Shipments of US agricultural machinery to France and the United Kingdom declined last year as lower corn prices cut farmers’ spending power, construction exports dipped, and shipments of medical equipment dropped as European governments tightened their healthcare budgets.

Carriers’ eastbound earnings have shrunk in the past 18 months as a result of sanctions against the Kremlin following the invasion of Crimea. Eight years ago, Russia was the largest single market for US chicken products accounting for about 18 percent of its poultry exports and was also one of the biggest markets for American pork and beef.

“Sanctions have simply wiped out this refrigerated cargo stream,” Drewry notes.

Although US exports slipped 0.7 percent and Canadian shipments were down 3.7 percent in the first 11 months of 2016, traffic out of Mexico surged almost 9 percent, driven by rising supplies of auto components to European manufacturers.

Drewry expects westbound volume will grow just 1.8 percent this year, and the eastbound market is due for a “small pickup” of 1.4 percent after three years of declining or zero growth.

“Even with our relatively cautious trans-Atlantic forecasts the new Trump administration in the United States does add considerable uncertainty,” Drewry cautions.

The Russian trade could, however, start growing again as a warmer relationship with the new US administration might result in some sanctions being relaxed and a kickstarting of the shipment of auto parts to US assembly plants in the country.

However, if President Donald Trump sticks to his election campaign rhetoric, the proposed Transatlantic Trade and Investment Partnership “is dead in the Atlantic waters.”

Westbound load factors averaged out in the high 80s in the second half of 2016, with some vessels sailing 95 percent full, and yet the renewal of annual service contracts in September saw rates soften by up to $100 per 40-foot container as carriers battled for market share.

Eastbound load factors are currently around 55 to 60 percent and spot rates are still as low as $500 for low-value products.

“More growth could have been expected for the westbound trade given the strength of the US dollar. It is unlikely that the new US administration will be able to spark this sleeping trade into life in the short to medium term.”

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