Just when it looked like nothing could stop the U.S. export juggernaut, some of the nation’s largest manufacturers and trans-Atlantic shippers were swept up in another force: a eurozone crisis that is curbing spending by the United States’ biggest trading partner.
And that will hurt the ocean carriers and cargo airlines that prize the trans-Atlantic trade for a reliability that allows them to focus on more problematic routes, particularly the unraveling Asia-Europe trade.
The most recent trans-Atlantic trade figures show a mixed picture. U.S. merchandise exports to the 27-nation EU flat-lined in May at $22.9 billion, compared with $22.7 billion a year earlier, after shrinking $1.1 billion to $22.3 billion year-over-year in April.
U.S. imports, however, rose 5.4 percent to $33.4 billion in May, resulting in the biggest trade gap — $10.5 billion — since July 2008 as Americans take advantage of the euro’s slide against the dollar.
The relative stability of the trans-Atlantic trade isn’t likely to last much longer. “With the eurozone crisis set to rumble on for some time yet, U.S. exports to the eurozone are only likely to fall further,” said Paul Dales, senior U.S. economist at Capital Economics.
Some of the largest U.S. exporters paint an even darker picture. “There is a good chance that in Europe, we could end up with a Japanese decade,” Honeywell International CEO David Cote warned, referring to the mix of recession, price deflation and high unemployment that plagued the Asian nation through the 1990s.
The changing trade outlook is mirrored in falling sea and air cargo volumes that are prompting ocean carriers and airlines to cut capacity they added earlier in the year when volume was rising. The most dramatic evidence of the sudden reversal came with the announcement by German carrier Hapag-Lloyd that it would suspend its weekly Atlantic Express Shuttle service between New York-New Jersey, Antwerp and Hamburg this month “due to the current market situation.”
Container traffic from North America to Europe tumbled 10.8 percent in May from a year earlier to 232,800 20-foot equivalent units following a 12.5 percent year-over-year slump in April to 232,100 TEUs, according to the latest figures from European data and pricing analyst Container Trades Statistics.
European shipments to North America held up better thanks to a weaker euro, with volume dipping just 0.8 percent in May to 292,000 TEUs after growing nearly 4 percent in April to 289,200 TEUs.
The springtime imbalance extended a trend from the first quarter, when the gap between eastbound and westbound legs widened significantly. Shipments out of Europe increased 8.6 percent year-over-year in the first three months of the year, while imports from North America declined 5.4 percent.
JOC Economist Mario Moreno expects volumes in both directions to grow in the second half of the year. He sees U.S. imports from North Europe climbing 16.4 percent in the third quarter and 9.7 percent in the fourth. On the U.S. exports side, Moreno expects volume to inch up 1.8 percent in the third quarter followed by a 9.3 percent jump in the fourth.
Airlines that switched capacity from the depressed Asia-Europe routes to the more buoyant North Atlantic during the past year also are taking a big hit from the eurozone’s woes. Lufthansa’s Americas traffic slumped to 49,000 tons in May from 58,000 tons a year earlier, largely because of lower trans-Atlantic shipments.
Airlines are sweating over the eurozone crisis because the U.S.-EU route is one of their biggest markets, outstripping even the depressed Asia-Europe trade. But for ocean carriers, it’s a relatively minor business — the trans-Atlantic accounted for just 8 percent of Maersk Line’s first quarter volume of 4.4 million TEUs after growing 8 percent from a year earlier.
The eurozone debacle is accelerating the relative demise of the EU-U.S. route compared to trade lanes in emerging economies such as the Asia-Middle East route. Before its sovereign debt crisis, the EU absorbed about 21 percent of U.S. exports, but that share has dwindled to 18.5 percent, according to consultants Ernst & Young. Maersk’s intra-Asia business is poised to overtake the trans-Atlantic after posting first quarter volume growth of 22 percent, accounting for 6 percent of its total traffic. Africa and Latin America, which already make up 15 and 14 percent of the Danish carrier’s volume, also are pulling further ahead of the trans-Atlantic, with first quarter growth rates of 16 and 23 percent, respectively.
The euro crisis is having a much bigger impact on the Asia-Europe trade, where Maersk reportedly has drawn up worst-case contingency plans for a 15 percent decline in shipments.
Data: MSC Wears the Crown.
The Atlantic’s status as a safe haven of stable cargo traffic, relatively healthy rates and modest profits also is at risk. Hapag-Lloyd’s Europe-Far East freight rates slumped 21.5 percent in the first quarter to $1,186 per TEU from $1,511 a year earlier, but rates in the Atlantic dipped just $5 to $1,751 per TEU. Maersk’s rate in the trans-Atlantic in the first quarter was unchanged from 12 months earlier, while it crashed 21 percent in the Asia-Europe trade and was down 8 percent on Latin American routes.
Despite Europe’s troubles, there are bright spots in niche markets such as the Baltic, which prompted Atlantic Container Line to launch a weekly roll-on, roll-off service from the U.S. and Canada to Finland and Russia in February.
And Russia could yet kick-start the moribund trans-Atlantic shipping market as U.S. exporters await easier access to the nation’s 142 million increasingly wealthy consumers after its accession to the World Trade Organization in late August. Russia currently doesn’t even rank in the top 30 U.S. export destinations, with sales of goods and services worth around $11 billion in 2011.
But U.S. exporters won’t get the full market-opening benefits of Russia’s accession to the WTO unless Congress approves pending legislation repealing the 1974 Jackson-Vanik amendment that linked favorable U.S. tariff rates on Russian goods to the right of Jews and other religious minorities to emigrate.
Sen. Max Baucus, D-Mont., chairman of the Senate Finance Committee, is urging Congress to normalize trade relations with Moscow by August, but many U.S. lawmakers view this as rewarding the questionable human rights record of authoritarian Russian President Vladimir Putin.
U.S. exports to Russia could double within five years after Russia joins the WTO and the U.S. normalizes trade relations with Moscow, according to Anders Aslund, senior researcher and Russia expert at the Peterson Institute for International Economics in Washington.
Rising Russian imports could compensate for falling U.S.-EU volumes and prompt ACL to activate an order for five large multipurpose vessels to replace a quintet of aging ships that have been crossing the North Atlantic since the mid-1980s. But it’s a big call for Grimaldi, the carrier’s Italian owner, because the trade faces further volatility as the eurozone crisis plays out.
The euro’s slide against the dollar could spur European exports to the U.S. and Canada. Mediterranean Shipping Co. underscored the beneficial impact of a cheap currency this month by suspending bookings from northwest Europe and Scandinavia to Asia and the Middle East because its ships were full with competitively priced European goods such as wastepaper and scrap metal.
In another sign the market could be bottoming out, Lufthansa’s Americas traffic fell just 2.9 percent in June to 54,000 tons, a significant improvement over May’s 12.8 percent decrease.
Eastbound shipments also could get a boost from increased spending by Europe’s stronger economies, especially Germany.
But carriers aren’t betting on an early turnaround, not least because GDP in Italy and Spain, the eurozone’s third- and fourth-largest economies, are still shrinking. “Europe is going to be weak for a while, and we don’t expect to see very rapid growth in North America,” said Tim Smith, CEO of Maersk’s North Asia region.
The medium-term outlook appears more optimistic as the U.S. and EU move closer to starting negotiations for a long-hoped free trade pact to eliminate remaining tariffs and regulatory barriers in sectors from chemicals to agriculture.
But for now, ocean carrier and air cargo executives in the trans-Atlantic trades can only sit on the sidelines and wait for the eurozone crisis to play out.
Contact Bruce Barnard at firstname.lastname@example.org.