The transatlantic trade has held up strong for container shipping companies throughout 2019, and although the trade continues to thrive, there is potential the tides could turn in the near future.
Goods shipments in both directions on the transatlantic trade so far in 2019 have increased substantially year-over-year, while capacity on the trade has remained relatively unchanged. Consequently, spot container rates on the trade have managed to hold up.
However, simmering trade tensions between the United States and the European Union could reverse carriers’ success on the trade. Long term though, it does appear container vessel ordering is beginning to cool off.
Merchandise trade growth versus TEU growth. The two tables below, which illustrate how the top five countries in Europe the U.S. imports goods from and exports goods to have increased compared to 2018, were built using not seasonally-adjusted data from the U.S. Census Bureau.
The table below, built using data from Statistics Canada, illustrates how Canada’s trade with the European Union has seen modest year-over-year growth for the first eight months of 2019.
Although merchandise trade between Europe and the U.S./Canada has remained strong, weekly allocated TEUs on the transatlantic trade in both directions has actually slightly declined over the course of the past year, as illustrated in the charts below, which were built using BlueWater Reporting’s Capacity Report. Weekly deployed TEUs on the North Europe to North America trade as of October 2018 rose year-over-year, while weekly deployed TEUs on the eastbound route had declined. For this entire analysis, North America refers to the U.S. and Canada only.
Weekly deployed TEUs refer to the vessel capacity deployed on the trade, regardless of whether or not its allocated specifically for the trade, while weekly allocated TEUs refer only to capacity that’s set aside specifically for the trade.
As a result of merchandise trade growth increasing at a faster rate than capacity growth, spot container rates on the trade have generally increased over the past year, unlike most global trades.
The Freightos Baltic Index (FBX) shows that spot container rates from Europe to the East Coast of North America as of Nov. 8 stood at $1,993 per FEU, up 32% year-over-year, while rates from the East Coast of North America to North Europe totaled $522 per FEU as of Nov. 8, up 21% year-over-year.
Orient Overseas Container Line (OOCL) is just one carrier that has been capitalizing off of this trade. For the first nine months of 2019, OOCL’s revenues from the transatlantic trade rose 17.3% year-over-year, much stronger than its revenues growth of 6.3% on the transpacific trade, 4.4% on the Asia-Europe trade and 4.5% on the intra-Asia/Australasia trade, according to data from Orient Overseas International Ltd.
Carrier footprint. Of the 12 container lines deploying vessels on the North Europe to North America trade, Mediterranean Shipping Co. (MSC), Hapag-Lloyd and Maersk Line allocate the most capacity towards the trade, as illustrated in the chart below, which was built using data from BlueWater Reporting’s Carrier/Trade Route Deployment Report.
From North America to North Europe, where 11 container lines deploy vessels, Hapag-Lloyd allocates the most capacity, followed closely by MSC and Maersk, as illustrated in the chart below, which was also constructed using BlueWater Reporting’s Carrier/Trade Route Deployment Report.
The three major ocean carrier alliances on major east-west trades - which comprise the 2M Alliance, the OCEAN Alliance and THE Alliance - collectively hold a 69% market share in terms of weekly allocated TEUs on the North Europe to North America trade, as illustrated in the chart below, which was built using BlueWater Reporting’s Capacity Report.
Even though the OCEAN Alliance is the largest of the three major ocean carrier alliances, it clocks in last on the transatlantic routes.
From North America to North Europe, the three alliances collectively hold a 74% market share in terms of weekly allocated TEUs towards the trade, as illustrated in the chart below, build using BlueWater Reporting’s Capacity Report.
In terms of container services between North Europe and North America, there are 24 container services operating on the North Europe to North America trade, 14 of which are dedicated, and 21 container services operating on the North America to North Europe trade, 14 of which are dedicated, as illustrated in the chart below, which was built using BlueWater Reporting’s Capacity Report. Dedicated services only sail between the two trade regions.
Transatlantic tension. The U.S. in October imposed duties ranging from 10%-25% on various products from the European Union valued at $7.5 billion. The decision came after the World Trade Organization (WTO) in early October determined that Airbus received illegal subsidies from the EU.
The award of $7.5 billion annually is by far the largest award in WTO history, the Office of the U.S. Trade Representative said.
The tariffs have been applied to “a range of imports from EU Member States, with the bulk of the tariffs being applied to imports from France, Germany, Spain, and the United Kingdom - the four countries responsible for the illegal subsidies,” according to the Office of the U.S. Trade Representative. “Although USTR has the authority to apply a 100 percent tariff on affected products, at this time the tariff increases will be limited to 10 percent on large civil aircraft and 25 percent on agricultural and other products.”
U.S. Trade Representative Robert Lighthizer said, “For years, Europe has been providing massive subsidies to Airbus that have seriously injured the U.S. aerospace industry and our workers. Finally, after 15 years of litigation, the WTO has confirmed that the United States is entitled to impose countermeasures in response to the EU’s illegal subsidies.”
In response to the tariffs, European Commissioner for Trade Cecilia Malmström said, “This step leaves us no alternative but to follow through in due course with our own tariffs in the Boeing case, where the U.S. has been found in breach of WTO rules.”
BlueWater Reporting's outlook. Simmering trade tensions between the U.S. and EU could hinder volumes on the transatlantic trade in the coming months.
Additionally, as carriers continue to inject record-breaking sized vessels on the Asia-Europe trade, it could accelerate the cascading effect of larger vessels onto other trades, including the transatlantic, posing the threat of oversaturating the trade with too much capacity. Long term though, it does appear container vessel ordering is starting to slow down.
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