The Trump administration’s implementation of threatened tariffs on vehicles and parts from Europe will shock a trade enjoying fast-growing volume growth, much of it due to the shipments of cars and auto parts.
United States imports from North Europe are up 6.6 percent in the first half of the year compared to the first six months of last year, and imports from the Mediterranean are up almost 11 percent. The volume data from PIERS, a JOC sister company within IHS Markit, shows that much of the import growth is being driven by vehicles and parts, which reached 114,848 TEU from January through June, a year-over-year increase of 6.6 percent.
According to Drewry, sports utility vehicle (SUV) sales climbed from roughly 1 million in 2015 to 1.3 million in 2018 and are expected to hit 1.5 million by 2020. BMW’s American plant output this year is expected to top 400,000 vehicles after reaching 356,750 units in 2018, generating additional volumes of parts from Europe.
The euro has weakened against the dollar this year, which is also stimulating US imports of other commodities. PIERS data shows commodities most in demand are in the beverages, spirits, and vinegar sector. Drewry ascribes the strength of this particular market to US importers wanting to avoid any disruption from Brexit, which was due to take place at the end of March but has now been postponed to the end of October.
How much longer the trans-Atlantic trade will maintain this solid volume is a big question. Drewry believes the westbound leg of the trans-Atlantic trade will continue to show robust health for the rest of the year with a caveat that this could change if and when the US follows through on tariff threats.
Europe in US tariff crosshairs
The US recently hit the pause button in its trade war with China and shifted its attention back to Europe, announcing late June that new tariffs could be imposed on around $4 billion of European goods such as cheese, coffee, and whisky, and added to a pending list of $21 billion in tariffs on EU goods announced in April.
Of particular concern to Germany, Europe’s largest economy, is a threat to impose tariffs on vehicle imports with the movement of car parts a major constituent of the headhaul trans-Atlantic market.
Drewry said President Donald Trump’s trade policies were casting a pall over Europe’s economies, and that the trade anxiety has led to a fall in business sentiment and spending. This can be seen in the IHS Markit Eurozone Manufacturing PMI, with operating conditions in Europe deteriorating for a fifth successive month in June.
“Eurozone manufacturing remained stuck firmly in a steep downturn in June, continuing to contract at one of the steepest rates seen for over six years,” said Chris Williamson, chief business economist at IHS Markit.
Vessel sizes on the trans-Atlantic have been growing over the past few years — particularly on Mediterranean-North America routes — as capacity cascades down from Asia-Europe trade.
SeaIntelligence data shows that on the South Atlantic trade from the Mediterranean to North America, the average vessel size has increased 38 percent, from 3,700 TEU to 5,100 TEU, between 2012 and 2018. The increase on the North Atlantic routes has been less pronounced, with ship capacity increasing by 18 percent, from 4,000 TEU to 4,700 TEU up to 2017, before decreasing slightly to 4,500 TEU.
Writing in his Sunday Spotlight newsletter, SeaIntelligence CEO Alan Murphy said carriers had recently begun to reduce vessel sizes. “We may have reached the upper limit of what can meaningfully be used on a short trade such as the North Atlantic,” he said.
“Conversely, we may be in the beginning of a larger displacement of vessels into the South Atlantic, especially as cascading from other trades will continue to exert pressure due to the delivery of even more vessels in the 14,000 TEU to 23,000 TEU category. The South Atlantic may also be better able to absorb such vessel sizes, as the sailing distances on part of this trade are longer than for the North Atlantic trade.”