Supply/demand: North Europe-North America

Load factors in North Europe-North America trade are too low to support carriers’ planned GRIs.Westbound
Although there has been much talk of a resurgence of the US housing market increasing US imports since October, no sign of this has yet appeared from Northern Europe. As shown in the chart below, westbound cargo flows remained flat over the past 12 months, oscillating only marginally around a monthly average of 213,000 teu.
Westbound North Europe-North America Container Traffic (’000 teu)
The lack of any peak season between July and October, and the continuation of the same cargo levels since, suggests that consumers’ discretionary spend has been focused elsewhere, leaving just basic materials coming from North Europe.
The winter months are usually the worst for cargo, however, so much of the 16% fall from October’s high of 229,000 teu to January’s low of 193,000 teu will have been seasonal. February is when North American stock levels usually start to be replenished, which is why our preliminary estimate is for a 10% month-on-month increase in February.
There are few signs of a recovery ahead either. The US’s fiscal cliff was only postponed from the end of December to 7 March, when its Government’s budget ‘sequestration’ finally became compulsory. This involves a massive $85 billion reduction in public spending over the next seven months. On a full year basis, it is said that this will take around $2 out of every $100 of planned Government spending. Employees will also be taxed more, taking disposable income out of their pockets, and companies employing more than 50 people will be compelled to offer generous healthcare benefits.
As an example of what the public spending cut means for the shipping world, the US Customs and Border Protection (CBP) has since warned customers that several thousand of its officers at ports of entry will be lost, in addition to significant reductions to its operating budgets and programmes.
The CBP claims that ‘sequestration’ could result in the service level of its cargo operations being reduced, ‘including increased and potentially escalating delays for container examinations of up to five days or more at major seaports, and significant daily back-ups at land border ports of entry’.
Fortunately for ocean carriers, very few service changes were made between November and the beginning of February. Apart from vessel upgrades, Maersk ceased calls in Wilhelmshaven and St Petersburg on its CRX service in December, but this was probably only due to the normal onset of ice conditions in the eastern Baltic rather than a cargo shortage, and two sailings were cancelled in January.
This meant that October’s effective westbound vessel capacity of 244,000 teu remained virtually unchanged through to the beginning of February.
North Europe-North America Capacity (’000 teu)
Average westbound vessel utilisation consequently fell from a healthy 94% in October to an uncomfortable 81% in December, only rising to 86% in February based on Drewry’s latest cargo forecast.
Westbound North Europe-North America Utilisation v Rates
Since then, due to ice conditions in the St Lawrence, and current bad weather on the Atlantic, the 4,400 teu OOCL Belgium was delayed from Montreal to Liverpool at the beginning of March, which could affect March’s average. After arrival on 14 March, the vessel will be subject to a routine in-water survey, to check that no damage was sustained when the vessel became trapped in ice.
The incident is a reminder that the transatlantic is one of the world’s worst ocean crossings in winter, making the improvement in ocean carrier schedule reliability between 3Q12 and 4Q12 more impressive than at first sight.
Drewry schedule reliability rankings – transatlantic carriers’ on-time %
Eastbound
Northern Europe’s imports from North America improved significantly between October and February, despite Europe’s continuing economic difficulties. Large parts of Europe remain on the verge of a triple-dip recession, so an estimated 13% month-on-month increase in eastbound transatlantic cargo in February is fairly encouraging. However, our preliminary estimate would still represent a 3% decline compared to the same month last year.
Eastbound North America-North Europe Container Traffic (’000 teu)
As ocean carriers kept vessel capacity more-or-less constant during the period, average eastbound vessel capacity improved significantly, from 72% to 80%.
Source: Drewry