In the trans-Pacific, capacity is surging and rates are sagging. In South America, Africa and the Middle East, demand is buoyant. These are volatile times for the ocean shipping industry — everywhere, it seems, but in the trans-Atlantic. There the trade has become the epitome of smooth sailing, and something of an afterthought among carrier strategists.
The stable and mature market of the trans-Atlantic likely may never witness sizzling growth again, but it’s a profit center for carriers that slipped back into the red in the first half of the year as the all-to-familiar wild swings in the trans-Pacific and Asia-Europe trades swung back down.
Trans-Atlantic volumes, like those in all trade lanes, dived during the 2009-10 financial and economic crisis. But while Europe-Asia and trans-Pacific volumes rebounded to pre-recession levels last year, both directions of the trans-Atlantic trade are operating well below 2006-08 levels.
That has widened the gap between the trans-Atlantic and Europe-Asia trades in the past three years, driven largely by the explosion in Chinese exports to Europe.
Two-way trans-Atlantic traffic between North Europe-Mediterranean and North America totaled 5.8 million 20-foot equivalent units in 2010, compared with 19.1 million TEUs in the Asia-Europe trade, according to U.K.-based Container Trade Statistics.
Total trans-Atlantic westbound volume increased 9.9 percent in May, to 262,800 TEUs, while eastbound volume rose 9.2 percent to 294,500 TEUs.
The trans-Atlantic’s stability and profit potential is showing up in carrier bottom lines. Hong Kong’s Orient Overseas Container Line, for example, reported second quarter trans-Atlantic revenue of $164.8 million, a 15 percent jump over the year earlier, while Asia-Europe revenue slumped 13 percent to $283.8 million and trans-Pacific revenue fell 5.4 percent to $482.6 million.
The OOCL figures also highlight a wide gap between yields on its routes. The higher Atlantic revenue came on an 8.4 percent increase in traffic, to 96,471 TEUs, while Asia-Europe sales fell despite an 18 percent surge in volume to 224,572 TEUs.
The trans-Atlantic is a haven of relative calm compared to the volatile Europe-Asia trades where carriers are struggling to push through rate increases and peak-season surcharges in the face of overcapacity and slowing cargo growth. “Freight rates for Africa and South America are sound, but very low on routes between Asia and North Europe,” Maersk Line CEO Eivind Kolding said in a recent interview with German newspaper Frankfurter Allgemeine Zeitung.
“Similar to the westbound leg, rates have remained relatively stable for American exports and will continue (that way) until the renewal of annual service contracts in the autumn,” Drewry Shipping Consultants said in its second quarter Container Forecaster. “For the most part, rates are fixed on a net-all-in-basis, and the sharp rises — and now the slight softening — of the carriers’ BAFs (bunker adjustment factors) since the start of 2011 have had little impact on lines’ revenue in this trade.”
Vessel utilization exceeded 90 percent in late June on both legs and should remain at this level until the summer vacation lull takes over this month, when it will drift back to the 80 to 90 percent range.
Future growth in the westbound trade appears to a certain degree to be dependent on the U.S. car industry, Drewry said, while in the opposite direction the critical factors are the weakness of the dollar and the appetite of East Europeans for U.S. goods.
Drewry forecasts eastbound shipments to northern Europe will grow 5.8 percent in 2011 to 2.1 million TEUs, while westbound traffic will increase 5.7 percent to 2.3 million TEUs.
The trans-Atlantic, including northern Europe and the Mediterranean, is also a fairly balanced trade, with 3 million TEUs westbound and 2.8 million eastbound in 2010. That’s a key factor for carriers facing rising costs to reposition empty boxes. The Asia-Europe trade, by contrast, is chronically unbalanced; approximately 19 million TEUs were shipped from Asia to Europe in 2010, while just 5.6 million TEUs were exported from Europe.
Capacity also is much more closely aligned to demand in the Atlantic after carriers cut an estimated 22 to 23 percent of cargo space during the 2009 slump and added just two services in 2010, one of which was pulled after a few months.
The trans-Atlantic appears set for further relative decline as volume surges on routes to and from emerging markets. The Asia-Middle East trade, which totaled 5.2 million TEUs in 2010, is expected to hit 6.22 million TEUs in 2012, edging out the trans-Atlantic’s 6.18 million, according to Clarkson Research, the London-based analyst. Unlike the trans-Atlantic, however, the Asia-Middle East trade is extremely unbalanced; traffic out of Asia totaled 4.6 million TEUs in 2010 and just 600,000 TEUs on the return leg.
But while it may be slipping in the rankings, the trans-Atlantic container trade sits on a solid foundation. The U.S. and the 27-nation European Union boast the world’s biggest bilateral trade relationship and form its most integrated economic region. The U.S. imported goods worth $342 billion from the EU in 2010 and exported $241 billion. U.S. investment in the EU is three times higher than in all of Asia, and EU investment in the U.S. is eight times more than in China and India together. European companies invested $113 billion in the United States, and U.S. companies invested $138 billion in the EU in 2009.
The EU is Canada’s second-largest trading partner after the United States, with two-way trade in goods totaling US$66 billion last year.
Add it up, and the total trans-Atlantic market was worth $649 billion last year.
That’s why the recently established European division of Yusen Logistics, the forwarding arm of Japanese shipowner NYK Line, identified the trans-Atlantic ocean and air freight market as a “key target trade lane,” particularly in automobiles, pharmaceuticals and retail, alongside the more obvious Asia-Europe route.
And there’s still some upside in the trade as new markets open. Canada plans to finalize a free trade agreement with the EU by 2012 that it hopes will help its exporters diversify away from the U.S. market.
Currency fluctuations also impact traffic flows, with U.S. exports driven by the dollar’s decline against the euro and the pound in the past couple of years. The strength of the Australian dollar has clipped that nation’s wine exports to the United States by 19 percent in the past 12 months, paving the way for increased sales of French and Italian wines across the Atlantic.
Carriers are continually looking for new markets to drive up utilization rates. Maersk, for example, returned to the Port of Halifax in 2010 following a lengthy absence after a new system was developed to ship live lobsters in refrigerated containers, opening the way for ships to compete with air freight.
Maersk also is trying to break air freight’s grip on the trans-Atlantic fresh salmon market, which has boomed since disease in Chile in 2009 wiped out 40 percent of the country’s fish farms and slashed shipments from the United States’ biggest supplier. Chile’s salmon exports to the U.S. slumped from more than 96,000 tons in 2010 to less than 28,000 tons last year, while imports from Norway and the U.K. soared from just over 17,000 tons to around 52,000 tons in the same period.
Maersk teamed up with a Norwegian research institute to develop a super-chilled salmon service based on packing techniques to enable farmed salmon to be shipped in refrigerated containers. Fish packaging in Norway would be transported to Bremerhaven, Germany, or Rotterdam and then shipped across the Atlantic to the key U.S. salmon ports of Boston and Miami.
Niche players also are experiencing improved trading conditions. Icelandic carrier Eimskip added a second vessel on its Iceland-North America service in mid-July in response to increased industrial and fish cargoes in Newfoundland
Atlantic Container Line will provide some clarity to the industry’s assessment of the trans-Atlantic’s potential when it reveals the replacements for its five 1984-1985-built specialized multipurpose that have carved a niche market on the route.
Reports that ACL’s Italian owner, Naples-based Grimaldi, is considering ships with double the number of container slots and up to 25 percent more roll-on, roll-off deck space suggest there’s a lot more upside to the Atlantic for carriers with focused marketing strategies.
ACL also is building a secondary business, carrying ro-ro cargoes across the Atlantic that are transshipped at European ports for onward transport to destinations as far away as South America.
For the big players, the trans-Atlantic might emerge as a useful profit center to offset the threat of reduced earnings or losses in the Asia-Europe trades as carriers flood the market in 2013 with giant container ships.
-- Contact Bruce Barnard at email@example.com.