While most trade lanes grapple with overcapacity and weak rates, the trans-Atlantic westbound market is one bright spot for ocean carriers. One market expert credits a strong U.S. dollar and capacity discipline as the keys to keeping that market firm.
Globally, spot container rates are stuck at one-year lows. The Freightos Baltic Index (SONAR: FBX.GLBL) for all trade lanes hovered at $1,323 per forty-foot equivalent unit (FEU). In contrast, spot rates on the Europe-North America East (FBX.ENAE) lane are up 42 percent from a year earlier at $2,044 per FEU.
Strong freight volumes underpin the rate strength. Europe’s trade surplus with the U.S. hit a record last year.
The trend may yet continue in 2019. The dollar value of European exports into U.S. East Coast ports reached $62 billion in the first quarter, according to the most recent data available from the U.S. Census Bureau, a 5 percent rise over the year-earlier period.
Andrew Rozek, President of I.C.E. Transport and a specialist in trans-Atlantic ocean freight, said the strong rates simply reflect the favorable exchange rate between the dollar and the Euro. He said demand for ocean freight correlates strongly with the more favorable exchange rate for U.S. importers.
“A lot of this comes down to the strength of the dollar,” Rozek said. “The biggest factor is the cost of the goods themselves. To go from $1.40 per Euro down to $1.15, that’s a lot.”
The container alliances have also maintained stricter capacity discipline than seen on trade lanes from Asia to Europe and the U.S. Those lanes routinely see ships from 10,000 twenty-foot equivalent (TEU) on up to 20,000 TEU in capacity. But the trans-Atlantic market remains home to vessels in the 4,000 TEU to 8,000 TEU range.
“On other trade lanes the vessels are not full, but on the trans-Atlantic westbound, the vessels are consistently full,” Rozek said. The upshot is that shippers are looking at an overbooking situation lasting between two and three weeks, with extreme cases four-week waits for an empty slot.
“By doing what they are doing, they are creating that perfect situation for themselves,” Rozek said. “They kind of like being where they are now and are not looking to increase capacity.
Still, it’s not quite a perfect market for the ocean carriers. The trans-Atlantic eastbound rate remains stuck under $500 per FEU due to the lack of backhaul freight.
The trade imbalance and the need to reposition empty containers prompted Orient Overseas Container Line to implement a “Trade Imbalance Surcharge” for all westbound containers from North Europe to U.S. ports, according to U.K.-based container news service PR News Service.
The surcharge is $100 for each twenty-foot container shipped and $200 for each forty-foot and above container shipped.
PR News Service’s Paul Richardson said it’s the first time he has heard of that surcharge being introduced in the trans-Atlantic market. Richardson said the notice cites an increase in operating costs and “the ongoing demand for westbound space” from Europe.
Maersk (Nasdaq OMX: MAER) is also looking to push through a $50 per container increase, Rozek said.
Despite the increases, Rozek said there is little on the horizon that would indicate any weakening demand, as long as the U.S. and Europe keep a lid on any trade disputes.
“By not being in the Far East market, we’ve avoided most of that turmoil,” Rozek said.
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