When Maersk Line shocked the maritime world in late March by suspending bookings in its North Europe-Asia service, it highlighted a trend easily lost amid headlines of sovereign debt crises and financial defaults: the strong demand in Asia and the U.S. for European products.
Maersk, like other carriers that have stopped taking new bookings until at least May because European terminals are clogged with exports, withdrew sailings in the run-up to Chinese New Year based on overly pessimistic forecasts for exports that instead have sustained momentum weeks after Chinese production lines restarted.
Signs that Europe has pulled back from the brink of collapse are boosting confidence across multiple industries, including transportation. UPS’s pending $6.8 billion takeover of TNT Express is driven as much by boosting its European footprint, especially in ground transportation, as getting hold of the Dutch company’s strong presence in faster-growing markets in China and Latin America.
Still, although a series of measures has muted the eurozone crisis for now — Greece sealed a second bailout package, the European Central Bank boosted liquidity with massive loans to banks, and European Union leaders approved a treaty to strengthen fiscal rules — the threat to the global economy and international trade remains quite real.
Spain, for example, could reignite the debt crisis as it struggles to control its wayward finances, Italian Prime Minister Mario Monti warns. The crisis isn’t over, German Chancellor Angela Merkel cautions, but merely in one of its “various phases,” and the governor of China’s Central Bank identifies Europe as the biggest uncertainty facing the nation’s economy.
Even if EU leaders keep a lid on the eurozone crisis, the international transportation and logistics sectors fear Europe will be a drag on their businesses through 2012. “Growth rates in Europe are extremely low, and my personal belief is they are going to continue to be low,” FedEx CEO Fred Smith said.
A weakening European outlook will depress traffic growth on the giant Asia-Europe container shipping route to just 1.5 percent this year, down from an estimated 2.8 percent in 2011, container market analyst Alphaliner says.
Europe faces at least a couple years of anemic growth, with the majority of countries imposing harsh austerity programs to reduce bloated deficits and facing tough opposition from labor unions and other vested interests to urgently needed structural reforms.
A recession — probably mild — in the 17-nation eurozone now appears unavoidable after its two largest economies, Germany and France, reported unexpectedly sharp declines in manufacturing in mid-March amid declining domestic demand. But in a continent that was facing a very real threat of financial collapse and a credit crunch just a few months ago, this counts as bullish news.
The transportation industry already is turning to other threats, notably the cost of operating planes, trucks and ships. “The risk of a eurozone crisis has been replaced by an equally toxic risk — rising oil prices,” said Tony Tyler, CEO of the International Air Transport Association.
But the threat of a fresh eurozone crisis is making Europe’s trading partners nervous, none more so than the U.S., Europe’s biggest trading partner in goods, services and investment.
Federal Reserve Chairman Ben Bernanke underscored the risks to the U.S. when he addressed the House Committee on Government Oversight and Reform on March 21. “The difficulties in the euro area have affected the U.S. economy,” Bernanke said. “The European Union accounts for roughly one-fifth of U.S. exports of goods and services. Not surprisingly, U.S. exports to Europe over the past two years have underperformed our exports to the rest of the world. In addition, weaker demand from Europe has slowed growth in other economies, which has also lowered foreign demand for our products.”
This has had a mixed impact on the transportation sector. Maersk Line’s trans-Atlantic container volume stagnated in 2011 while Asia-Europe shipments soared 16 percent year-over-year. But Lufthansa Cargo reported traffic on its America route jumped 10 percent in 2011, mainly driven by U.S. shipments and despite the loss of high-value express cargo in the fourth quarter following a ban on night flights at its Frankfurt hub. The carrier switched capacity to the Atlantic from the Asia-Pacific region and recently doubled the frequency of a Frankfurt-Detroit service launched at the beginning of the year.
A German economic slowdown would immediately impact a global transportation sector that has relied on the nation’s surging exports — including record shipments to China — to compensate for weaker markets in the troubled eurozone. German companies have been the main beneficiaries: Hapag-Lloyd was one of the few ocean carriers to make an operating profit in an industry that Drewry Shipping Consultants estimated lost more than $5 billion in 2011.
Lufthansa Cargo has earned $732 million in the past two years and forecasts a three-digit million profit in 2012 as its rivals sink into the red and cap freighter capacity.
Switzerland-based logistics provider Kuehne + Nagel said it enjoyed excellent contract logistics results in Germany in 2011, offsetting softening demand in the rest of Europe.
German ports’ container traffic soared 16.5 percent in 2011 to 15.3 million 20-foot equivalent units, just 2.5 percent short of 2008’s record 15.7 million TEUs. The U.S. was the third-fastest-growing destination after China and Russia, with traffic rising 209,000 TEUs from 2010.
While the eurozone could yet relapse into a new crisis, most economists are predicting relative stability and a shallow European recession that won’t inflict much damage on the rest of the global economy.
The U.S. is anxiously looking across the pond to see whether European policymakers remain on track as they struggle toward a lasting solution to the single currency’s woes.
“Although progress has been made, more needs to be done,” Bernanke said. “Full resolution of the (eurozone) crisis will require a further strengthening of the European banking system; a significant expansion of financial backstops, or ‘firewalls,’ to guard against contagion in sovereign debt markets; and, critically, continued efforts to increase economic growth and competitiveness and to reduce external balances in the troubled countries.”
Contact Bruce Barnard at email@example.com.