Ocean freight prices remaining steady on transatlantic trade

7/25/2017

Ocean freight spot prices have remained steady for several months on the transatlantic trade and look set to remain so even as the strong headhaul westbound demand growth seen in early 2017 tapers off as the year progresses, Drewry analysis suggests.

Drewry noted that in the first five months of this year, North European exports to North America registered a rise of 5.7%, according to statistics from PIERS and CTS. Broken down, loads bound for the US rose 4.9% to 890,000 teu; Canadian imports were flat at roughly 260,000 teu, while inbound Mexican volumes continued to soar, rising by nearly 20% to just under 180,000 teu.

The container shipping analyst said some carriers are hopeful that this current rate of growth will continue throughout the year, but Drewry is more sceptical. “In our opinion, westbound transatlantic volumes are likely to soften in the second half of the year and the annual growth rate will probably end up closer to 3%,” it noted. “The key factors that have brought us to this conclusion are the Brexit effect and a slowdown in new car sales in the US.”

The outcome of the Brexit referendum, which was held now over a year ago, caused the value of sterling to fall to a 30-year low against the dollar, and this had the immediate effect of boosting British exports to America. According to one British forwarder, exports out of the UK in the first quarter on Transatlantic vessels were running 8-10% above what was being shipped a year ago, Drewry noted.

“Much of the increase was concentrated in the food and drinks sector, but pharmaceuticals, motor vehicle spares, aircraft machinery and lighting equipment were also said to be moving in larger quantities,” it noted. “Come the latter half of 2017, however, the Brexit effect might not be so pronounced when making year-on-year comparisons.”

The second factor that could dampen growth on the westbound leg is the cooling of the new car sales market in the US. The movement of automobile parts – predominantly from Germany – is the largest commodity block in the trade and has enjoyed two extraordinary years of growth, coinciding with the boom in car purchases in the US, Drewry said.

“If there is a growth story in the coming months, then it will be the flow of components that are being dispatched to the numerous suppliers that have sprung up in Mexico to support the new breed of car assembly plants in the country,” Drewry added

The eastbound ‘backhaul’ leg of the trade has been pretty much static, which is where it landed last year, Drewry said, adding: “At the time of writing, we have not yet seen complete data for May, but were it not for greater exports out of the diminutive Mexican market, eastbound volumes would have been in decline after four months of the year.”

US exports were down by 0.5% year-to-date to 457,000 teu, Canadian exports fell by a similar margin to 154,000 teu, while Mexican shipments jumped 9% to 113,000 teu thanks in the most part to enhanced movements of car parts and beer. Subsequently, total North American exports to North Europe were up by 0.8% after four months to 724,000 teu.

“There seem to be no drivers that might generate any meaningful growth in the eastbound trade, either now or in the foreseeable future,” Drewry said. “The dollar remains strong and American exporters are focusing on new markets in the Far East.”

Well over 40% of the backhaul volume is composed of goods for the UK, but, with sterling weakened even further by the result of the country’s snap election in early June, North American exporters face an uphill struggle to gain any new traction in the British market, Drewry noted.

On the capacity side, Drewry said the transatlantic would see only minor changes, “which should help maintain trade stability. Effective capacity has been creeping up, primarily due to a few upgrades in ship sizes of 2M’s TA2 and Ocean Alliance’s Liberty Bridge Express, while ACL has taken delivery of its final 3,800 teu containership to replace the much smaller and older ro-ro ships on its North Atlantic service,” it noted.

“Further ahead, we expect to see more upgrading via the cascade; replacements including two MSC ships (8,089 teu) in place of 7,400 teu ships on 2M’s TA3/NEUATL3 loop, two 7,450 teu ships in place of 6,600 teu ships on 2M’s TA2/NEUATL2 loop and one 6,500 teu in place of one 4,200 teu on Ocean Alliance’s Victory Bridge/EUG/ATG1 service.”

Drewry said westbound spot rates have “moved very little” in recent months, although long-term contract rates have seen some rises. “When some of the BCO contracts and forwarder FAK agreements came up for renewal in April, the carriers were able at least to recover the $100 or so they had given away on a 40ft loads back in 2016,” the analyst noted.

Drewry cited one forwarder source that suggested space on the North Europe-Asia eastbound trade had been so tight during April and May that carriers were able to extract some improvement in revenue in the transatlantic market. In a few isolated reported instances, shippers, desperate to get their goods to Asia, had actually despatched shipments across the Atlantic and switched them to transpacific westbound loaders at a US terminal, Drewry noted.

The analyst concluded: “Westbound demand growth will probably taper off as the year progresses, but even so spot rates will continue to be relatively stable.”