Freight forwarders are watching for any fallout from the alliance reorganization on the trans-Atlantic trade, with some fearing scattered delays in cargo movements and a decline in rates following an increase in capacity but little growth in volumes to warrant it.
Responding to a prediction by analyst SeaIntel that there would be “massive injection of capacity” into the westbound routes to the US East Coast in the spring, freight forwarders said they had yet to see the capacity increase and that they could see little short-term benefit to route users beyond greater options in placing cargo on a ship. At worst, it could depress rates, after a year in which spot rates on the inbound route — which account for about 60 percent of trans-Atlantic container volume — fell by 2.5 percent to $1,775.
Joseph T. Saggese, executive managing director at Washington, DC-based North Atlantic Alliance Association, said the impact of the capacity increase would be to "keep downward pressure on the rates.”
“It’s just more capacity on an already over-capacity trade lane,” Saggese said. “It’s probably built for the future — 2018, 2019,” he said. “But for the rest of this year, it’s not going to have a positive impact on rates.”
Although the alliance change took effect April 1, reshuffling carrier alliances from four to three — 2M, THE Alliance, and the Ocean Alliance — the impact is only slowly emerging on routes across the globe, and it’s unclear how it will shake out and which ports and routes will see more volume and which less. That’s also true on the trans-Atlantic, which is normally stable and not subject to the volatility experienced on other routes, such as those in the Far East.
SeaIntel predicted that capacity on the Mediterranean to East Coast route will increase by 19.4 percent in the second quarter, compared with the same period a year before, once the alliance changes begin. Capacity from Northern Europe to the East Coast will rise by 5.6 percent, the analyst said.
Maritime analyst Alphaliner agrees in part with the scenario, saying the volume of TEU that could be carried on the route would increase by about 10 percent as a result of the new alliances.
Drewry, however, said the restructuring has so far had “limited net impact on capacity in this trade on either the eastbound or westbound legs.” Schedules released for May indicate that the number of available slots will only be about 1 percent higher year-over-year, but “carriers are slowly introducing some bigger ships,” the analyst said.
If that happens, volumes would need to grow to fill the additional capacity. The trans-Atlantic route began the year strongly, with a 10.4 percent year-over-year increase in volumes from Northern Europe to the United States, Canada, and Mexico in January, Drewry said, based on data compiled from PIERS, a sister division of JOC.com within IHS Markit, and UK-based Container Trade Statistics. But that was followed by a monthly increase in February of 2.8 percent, and a decline in March of 4.4 percent, Drewry said. As a result, volumes on the route grew by just 2.7 percent in the quarter, Drewry said, predicting that the increase for the year could be about the same, “and possibly even lower than 2 percent.”
Another executive, the head of a non-vessel-operating common carrier, said he had heard from carrier sources that capacity on the Northern Europe trade lane would increase by just over 5 percent. He did not expect that level of increase to have much impact. “Rates are so low now they really cannot go much lower,” the executive said. Added capacity would mean “slightly more options and sailings, but I do not look at it as dramatic,” he said.
So far, there have been no major upheavals as a result of the alliance reshuffles, but there have been some delays — perhaps because cargo was booked on one ship, and rolled onto another, a corporate account manager at a global logistics company said.
“The issue seems to be the physical deployment of vessels,” he said. “For example, bookings could have been made on a 5,000-TEU vessel. That vessel is then taken out of service and replaced — 2 weeks later — by a larger vessel. It means that for at least 1 week, there was no vessel. This ‘might’ be what is going on — especially if you say lots more capacity is on the way.”
Drewry predicted that spot prices in 2017 would be stable after a year of mild turbulence. The spot rate of $1,775 on the westbound Rotterdam to New York route is about 2.5 percent lower than the rate of $1,821, in the same week of 2016, according to JOC.com’s Market Data Hub, using information from Drewry’s World Container Index. The rate of $482 in the eastbound direction is up about 4 percent on a year ago, the hub shows.
Trans-Atlantic rates, as on other routes, have tumbled dramatically in recent years owing to the excess of carrier capacity. The 2017 rate for the Rotterdam to New York route is about 30 percent, or $770, down on the 2012 rate of $2,550, and the 2017 rate in the opposite direction is 75 percent down from the 2012 figure of 2,066.
“They are probably as low as they have ever been,” Saggese said. “So, if there was less capacity, it would be a good opportunity to raise rates. The fact that there is more capacity, it’s going to be much harder for the carriers to raise rates.”
SeaIntel said the capacity increase on the Mediterranean lane is partly due to the addition of an extra service, taking the total to 10 under the new alliances, and also Mediterranean Shipping Co.’s (MSC's) use of larger vessels on a route to Canada. The number of routes on the Northern Europe to East Coast trade is the same, remaining at seven, but larger vessels are appearing on the route, SeaIntel said.
The analyst cited the example of a Maersk route — beginning in Bremerhaven, Germany, that passes through the Port of New York and New Jersey and three other East coast ports, concluding in Savannah — on which the 4,800-TEU ships used in 2016 will be replaced with 7,500-TEU ships.
“As the new alliances go live, we will see a massive injection of capacity in the two trade lanes connecting Europe to US East Coast,” SeaIntel said. It said it studied only the westbound services, but added that “the capacity developments on east- and westbound will be the same, although offset by a number of weeks.”
Collectively, there are 27 weekly sailings on the trans-Atlantic routes under the new alliances, one more than just prior to the start of the new alliance era and the same as in August, according to Alphaliner. There are 158 ships on the trans-Atlantic trade under the new alliances with capacity for 811,089 TEU, compared with 157 ships capable of carrying 737,945 TEU — an increase of 10 percent in TEU, according to the Alphaliner figures.
The average vessel size on the route under the new alliances is 5,133 TEU, about 9 percent higher than the average vessel size of 4,700, the Alphaliner figures show.
Drewry’s said carriers are “slowly introducing some bigger ships,” such as 2M carriers Maersk Line and MSC, which are testing an 8,000 TEU ship on the Mediterranean to Gulf of Mexico route that is normally served by 5,600 TEU ships. This extra capacity is mitigated by the fact that Hapag-Lloyd pulled five ships of 8,600 TEU to 8,800 TEU from Northern Europe to the US East Coast.