Trans-Atlantic carriers boosting capacity ahead of tariffs

Trans-Atlantic carriers boosting capacity ahead of tariffs

US imports from Europe grew 6.4 percent to 1.4 million TEU through the first seven months of this year, while US exports to Europe rose 7.1 percent to 909,000 TEU. Photo credit: Shutterstock.com.

Trans-Atlantic carriers are boosting capacity from Europe to the United States by more than 10 percent even as the US imposition of $7.5 billion in tariffs on European goods threatens the 6.7 percent volume growth seen through July this year.

Capacity on the North Europe-US East Coast trade will increase 10.3 percent in the fourth quarter year over year, while capacity on the Mediterranean-US East Coast will grow 9.8 percent, Sea-Intelligence Maritime Consulting said in its Sunday Spotlight newsletter.

The increase in capacity will impact a trade that in the first seven months of the year saw US imports from Europe grow 6.4 percent to 1.4 million TEU, and US exports to Europe rising 7.1 percent to 909,000 TEU, according to data from PIERS, a sister company of JOC within IHS Markit.

But the injection of capacity will also hit a market that has been enjoying higher year-over-year spot rates this year. Rates on the westbound Europe-US trades, tracked by the Drewry World Container Index, are at $2,308 per FEU, almost 16 percent higher than this point last year. The weekly rate movements are tracked at the JOC Shipping & Logistics Pricing Hub.

Sea-Intelligence found the capacity picture on the Europe-US West Coast trade was more volatile. Capacity on that route will shrink almost 2 percent in the fourth quarter when the average capacity growth over the past five years has been about 18 percent. The analyst put this down to the relatively few services on the trade where changes in vessel sizes or blank sailings could cause large swings in capacity.

WTO move triggers EC response

The World Trade Organization (WTO) this week approved US tariffs that target a range of goods from France, Spain, Germany, and the United Kingdom, including 25 percent tariffs on agricultural imports, and 10 percent tariffs on aircraft and aerospace products. In response, the European Commission has proposed retaliatory tariffs on $15 billion of imports from the US.

The widening trade dispute stems from a 15-year row over state subsidies provided to Airbus in Europe and to Boeing in the US but has spilled over into other areas. In March 2018, the US announced tariffs of 25 percent on steel and 10 percent on aluminum from Europe, after which the EU slapped duties on US goods, such as whisky and motorcycles.

There is no decision yet on the Trump administration’s proposal to raise tariffs on car imports from Europe, which is of particular concern to Germany, Europe’s largest economy, with the movement of car parts a major constituent of the headhaul trans-Atlantic market. 

In the first half of 2019, US imports from Northern Europe were up 6.6 percent compared with the first six months of last year, and imports from the Mediterranean were up almost 11 percent. The PIERS data shows much of the import growth was driven by vehicles and parts, which reached 114,848 TEU from January through June, a year-over-year increase of 6.6 percent. 

Drewry believes the westbound leg of the trans-Atlantic trade will continue to show robust health for the rest of the year but warned this could change following US tariffs.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.