The trans-Atlantic shipping business is the epitome of a mature market. But for shippers selling goods across the Atlantic and carriers working the trade, it’s like the Energizer Bunny: It just keeps going and going. U.S. consumers keep drinking Perrier, sipping Chianti and savoring Greek olives and Spanish pine nuts, while European industries keep their plants running with U.S. chemical feedstock and machine parts.
The strength of first quarter volume indicates U.S.-Europe trade is holding up well despite fears that the onset of austerity programs in Europe could eat into eastbound cargo flows or that U.S. consumers were still skittish about buying European luxury goods.
U.S. containerized imports from Europe expanded 11.9 percent in 2010 over the depressed figures of 2009, according to figures from PIERS, a sister company of The Journal of Commerce. But as with many trade figures, the rebound in the Europe-U.S. container trade was only a relative recovery.
The PIERS figures show westbound container trade last year was still 10 percent behind 2008 volume. The rebound also was concentrated largely at the top. Container volume for the top 10 container lines expanded 17.3 percent year-over-year last year and nearly reached the 2008 level.
For carriers and shippers, that’s something to build on, but the Black Swan impact of soaring oil prices from the uncivil war in Libya is starting to cast a shadow over growth forecasts.
Unlike other major east-west trading markets, overcapacity of vessel space isn’t an issue on the Atlantic because carriers have kept supply in close equilibrium with demand. Even if Asia-Europe’s looming overcapacity causes carriers to cascade vessels onto other trade lanes, it probably won’t affect the trans-Atlantic as much as other routes.
Ships were sailing full or close to full in both directions on the Atlantic for much of last year, so carriers were able to push through hefty increases early in the year. But slowing demand in the third quarter meant they weren’t able to nail down the full rate increases they posted on Oct. 1.
The fate of the general rate increases carriers posted for April 1 was in doubt even as the hikes were set to take effect last week as shippers say enough is enough, especially when they are still negotiating the coming year’s annual contracts.
Carriers, however, will try to secure further increases this year because rates haven’t returned to 2008 levels. They say their ships were sailing close to full in February, especially on the headhaul westbound leg, where there was some tightening of capacity because of winter service suspensions. The eastbound leg also was strong.
“There are a lot of contracts out there which do not make sense for us to sign without a healthier price tag,” said Soren Castbak, senior director of network and product for trans-Atlantic services at Maersk Line. “When talking to our customers, I sense a degree of uncertainty about the global economy in the market this year, expecting that rates have now reached a fair level. The fact remains, though, that many contract rates are still, in spite of increases, lower than before the crisis.”
Maersk has acted on the idea. The carrier was the only one of the top 10 importing container lines to see container volume decline in 2010, but A.P. Moller-Maersk’s container shipping unit reported a 30.1 percent increase in revenue last year and a $2.9 billion profit.
Vessel utilization for Maersk ships on the trans-Atlantic, which was running at about 85 percent during the slack period at the start of the year, is running full in both directions now that demand has returned, Castbak said.
The last round of rate hikes on Oct. 1 was only partially successful, in large part because of the timing, according to Ken O’Brien, vice president of pan-American trade for APL. “The economy slowed down in October, so we had trouble sustaining the increase,” he said.
Rates are still about $200 to $300 per 40-foot equivalent unit below the peak rates carriers attained in 2008. “We’ve made up some ground, but we’re still under water,” O’Brien said.
He sees growing volume, especially in light of strong first quarter demand. “Eastbound demand has been very strong,” O’Brien said. “We are currently full and projected to stay that way for a while.” European demand for U.S. goods was so strong in the first quarter that he is raising his forecast for eastbound volume growth to as much as 7 percent from his previous projection of 5 percent.
On the westbound leg, APL’s business “has been pretty stable, maybe not as strong as eastbound — not full, but almost full,” O’Brien said. Consumer spending on food and beverages is stable to down year-over-year. The one bucket of cargo still slow is related to homebuilding, which continues to drag in the U.S.
By contrast, Maersk Line, which is forecasting 3 percent growth in total volume in both directions, expects stronger growth on the westbound leg, thanks to U.S. demand for machinery and parts, Castbak said. European demand for U.S. chemicals remains strong, he said.
In the March issue of its quarterly Container Forecaster, Drewry Shipping Consultants estimates 2011 volume will grow 4.5 percent on the eastbound leg and 3.6 percent westbound. The London-based company forecasts westbound vessel utilization in the third quarter will be 86 percent and 82.2 percent eastbound.
Vessel capacity over the Atlantic ticked up about 6 percent in March. Hapag-Lloyd reintroduced its shuttle service between Antwerp, Hamburg and New York-New Jersey after a winter suspension, restoring about 5 percent to total trade lane capacity. In addition, Mediterranean Shipping Co., the No. 1 line for U.S.-inbound and -outbound volume last year, is increasing the capacity of two ships between the Gulf of Mexico and Europe to 8,000 20-foot equivalent units, boosting capacity 1 percent.
The global shortage of container equipment doesn’t have as much of an impact on the trans-Atlantic as on the trans-Pacific.
Castbak said shippers are providing better volume forecasts this year. “This helps us help our customers, so in those cases we are OK with the equipment situation,” he said. But the equipment shortage adds to Maersk’s cost base, because “we have to redistribute boxes from import locations to export locations. A costly affair, but it is important for us to deliver what we sell.”
Shippers are finding space available and aren’t having much trouble with equipment shortages.
“With some isolated exceptions, we are not having trouble getting westbound space when we need it,” said Geoffrey Giovanetti, managing director of the Wine and Spirits Shippers Association. “We don’t see much in the way of equipment shortages in Europe (for westbound cargo) or at the ports (for eastbound cargo). Where we’re aware of chronic shortages is in the interior part of the country for exports. We are also talking with another group of exporters about trying to ensure boxes we deliver to inland destinations are available for their exports.”
Giovanetti said tight capacity won’t be an issue in contract negotiations. “If limited space were something we should expect for the full year, we would have seen that reflected in our current rate negotiations,” he said.
WSSA members experienced two increases last year, “each rather substantial.” The first came in the spring, when most member contracts renewed with, in some cases, increases of several hundred dollars per container.
He said some carriers required another increase in October, which was in the middle of the heavy shipping season for wine importers. “Not all carriers insisted on increases at that time, and some rescinded them later, but several carriers asked for another $100 to $250,” Giovanetti said. “We agreed to ensure that we had ample space available.”
The WSSA is accepting some of the April 1 increases, depending on whether carriers increased rates last fall. “We do not see the effect of them (the April 1 increases) in our contract renewals. We are in the middle of contract renewal negotiations for the trans-Atlantic, and most carriers have kept rates as they were as of last October,” Giovanetti said. “Of course, we did accept increases from the carriers which did not increase their rates last fall.”
Drewry doesn’t think carriers will have much success getting the April 1 increases they have posted. “This is a posturing maneuver ahead of the renegotiation of service contracts that expire at the end of March,” said Neil Dekker, editor of Drewry’s Container Forecaster. “Exactly how much of the trade is actually ‘open’ for rate adjustment is always a subject of debate, but all the forwarders that Drewry has spoken to remark that they will stoutly resist any such increase for the moment.”
Dekker said quotes for spot rates on the trans-Atlantic indicate rates have fallen significantly in the early spring, but “there is nothing to suggest that the trans-Atlantic trade will start posting the type of heavy rate losses that have been observed in the Asia-Europe or trans-Pacific trades.
“One major factor in this trade’s favor is that new capacity is not pouring in and, to be honest, the carriers have their hands more than full elsewhere,” he said.
Contact Peter T. Leach at email@example.com.