The stagnant transatlantic has started the year on a stronger footing – but what impact will Trump’s tenure have on the trade?
The outlook for the transatlantic is a mixed bag. Ship operators on the trade argue that carrier consolidation is likely to improve the balance of supply and demand. But the new Trump administration in the USA adds uncertainty, and trade figures for 2016 show growth that was slow and that even ground to a halt.
The transatlantic has begun 2017 much stronger than in previous years, with supply and demand expected to improve as a result of the new alliances and mergers and acquisitions activity, Atlantic Container Line (ACL) president and chief executive Andrew Abbott told Container Shipping & Trade.
“We had expected 2017 to be another difficult year for container shipping on the Atlantic, but the year is starting off much stronger than previous years. January is normally a very slow month, but we have been running close to full capacity each week in January and we have been unable to purchase additional slots, so other carriers must be full as well.”
He said that the new alliances, mergers and acquisitions and withdrawals announced over the last few months mean there will be fewer competitors and an “improved supply and demand picture” on the Atlantic this year.
Homing in on ACL, he said the US-headquartered conro operator’s cost profile would improve in 2017 with a homogeneous fleet, an on-time schedule, a leaner organisation, more automated systems, and more synergies with its owner, the Grimaldi Group.
“These positive developments, together with our unique ships, ports and cargo, will enable us to weather this protracted shipping ‘storm’ that has claimed so many casualties so far,” Mr Abbott added.
2016 was the year that ACL launched its innovative new G4 (Generation 4) fleet. Mr Abbott commented: “2016 was a difficult transition year for ACL, with new ships coming in and old ships going out. We were still profitable – one of the few carriers who can make that claim – but it was difficult to achieve.”
He added: “Our new ships have a revolutionary new design so we have had our fair share of teething problems during the year. On top of that, having a mix of 1,850 teu G3 vessels and 3,800 teu G4 vessels meant that we had to offer a big ship-small ship-big ship service. We supplemented the small ship weeks with slots that we purchased as needed. Our customers remained amazingly patient and loyal despite all of those gymnastics.”
ACL has gradually built up the liftings on the G4s to a level exceeding 3,000 teu on each sailing westbound, while the G3 weeks are up to 2,350 teu (full utilisation of the G3 vessel plus slot purchases). In the return direction, ACL is running at 2,500 teu on the G4 weeks and 1,850 teu on the G3 weeks.
“The good news is that we are finally getting the bugs out of the new ships, so the schedule is returning to the reliability for which ACL has always been known. To ensure this, we are keeping an extra G3 in service, operating six ships in our five ship schedule, until September to guarantee on-time departures and to avoid the need to drop ports as we had to do during 2016,” explained Mr Abbott.
According to UK consultancy Drewry, annual westbound transatlantic volume growth seemed set to end 2016 at only a little over 2 per cent year on year, even after a “recovery of sorts” in the second half of the year. Drewry figures show that for the first 11 months, westbound shipments were up 2.5 per cent to 2.9 million teu.
“This is a far cry from growth of 8.4 per cent and 6.4 per cent recorded in 2014 and 2015 respectively and is a symptom of plateauing consumer demand in the USA. Given the rapidly strengthening dollar against the euro and British pound, carriers might well have expected more from this trade,” said Drewry Container Insight Weekly.
Meanwhile, the eastbound leg of the trade remains a weak market with year-to-date North American outbound volumes at the end of November “a fraction” below what was carried in the same 11-month period in 2015. “Here, a strong dollar and subdued demand in Europe are not providing any momentum to the trade, which last saw any real annual growth in volumes way back in 2013,” Drewry explained.
Drewry forecasts that the total laden volume carried on the combined legs will exceed 5 million teu in 2016, but in the next 12 months the transatlantic route is likely to be overtaken by the Asia–South Asia market as the fourth largest deepsea trade lane after the transpacific, Asia–North Europe and Asia–Mediterranean. Drewry expects westbound volumes to continue to decelerate in 2017 with growth of 1.8 per cent, while the eastbound market is due to pick up slightly, after three years of decline or zero growth, to 1.4 per cent.
Its newsletter says: “One possible growth story lies in the Russian market. A warmer relationship with the Trump administration could result in some of the sanctions being relaxed and kick-start the movement of car parts to American assembly plants in the country. On the flip side, if Donald Trump’s election campaign rhetoric is to be believed the tentative free trade agreement discussions between the USA and the EU – the so-called Transatlantic Trade and Investment Partnership – are dead in the Atlantic waters.”
UK consultancy Container Trades Statistics (CTS), too, shows only a tiny or stagnant amount of growth. Last year, total volumes from Europe to North America were up by just 3.36 per cent year on year, reaching 4.3 million teu. CTS’s figures reveal a rocky road. Quarter one achieved 1.02 million teu, a 4.7 per cent rise compared to the same period the previous year. Then figures slumped for quarter two – the 1.09 million teu achieved then was a mere 0.12 per cent up compared to the same period in 2015. Quarter three totals were 4.3 per cent up year on year, and quarter four was 4.6 per cent up.
On the North America to Europe leg, 2016 total volumes were stagnant. The 2.58 million teu achieved was only 0.02 per cent above 2015’s volumes. And quarterly volumes showed only weak growth compared to 2015 – 5.42 per cent for quarter one compared with quarter one 2015, followed by 3.8 per cent, 3.72 per cent and 2.66 per cent for quarters two, three and four respectively.
CTS’s price index paints a negative picture. For both legs, rates show a decline as the year went on. For the Europe to North America leg, last year started strongly, with 91 points in January (CTS’s price index has a base rate of 100). But this declined month on month, reaching 78 in December.
For the North America to Europe leg, January 2016 registered 79 points. This fell to 68 in December.
Transatlantic: a port’s perspective
The importance of the Canada-EU Comprehensive Economic and Trade Agreement (CETA) is highlighted by Montreal Port Authority.
Its vice president for public affairs, Sophie Roux, told Container Shipping & Trade: “Canadian ports are ready for the much-awaited Canada-EU free trade agreement, expected to come into effect this year.”
The Port of Montreal is an important player in the transatlantic trade. In 2016 the port handled 13.1 million tonnes of cargo in this sector, a similar volume to 2015. A total of 1,447,566 teu moved through the port in 2016, a growth of 9 per cent since 2010.
An important driver for the port in the transatlantic sector is emerging markets. Ms Roux explained: “On the container side, Asia and the Middle East, through transshipment with our European services, have been driving much of the growth in the past five years and are likely to continue to do so in the short term.”
Asked about the new container shipping alliances, she said: “We believe that our solid reputation as a fluid, reliable, and congestion free port with profitable trade routes contributes, to some degree, to the carriers’ decision to exclude Montreal from the new alliances in the short term. To date, the Port of Montreal has essentially been considered “out of scope” for carriers serving the Port of Montreal, as they continue to consolidate and finalise the new alliances.”
The port is preparing for future growth, in the transatlantic and other trades, with the construction of its new Viau container terminal, which will increase the port’s capacity from 1.5 million teu to 2.1 million teu. The first of two phases is now complete, adding 350,000 teu to the port’s capacity.
In addition, an expansion terminal is in development. It is estimated that the Contrecoeur port terminal expansion could be operational by the middle of the next decade. This terminal would add 1.15 million teu to the port’s capacity.