While the revenues the container shipping lines are making on the transatlantic trade has come down slightly since the beginning of the year, it remains far above comparable revenue on trade routes from Asia and the temptation to add more capacity may prove irresistible.
Pre-pandemic, the jewel in container shipping’s crown, were their trades from Asia, serving the United States and Europe, while the transatlantic routes consistently struggled to return the revenue the shipping lines expected.
If there are no profound market changes, the elevated rate levels that have made transatlantic traffic so profitable since it reached record highs last May, will soften naturally over the next six months, without any of the steep drops seen on the major trades out of Asia.
While the direction of rates looks certain the transatlantic trade performs differently and is likely to hold up better than the rest, because even though revenue per TEU has fallen slightly since the beginning of the year, it remains far above the revenue carriers are generating on other east-west trade routes.
Owing to mild winter weather, high natural gas storage levels, and falling energy prices, the risk of a severe recession in Europe appears to have been averted, with consumer and business sentiment improving. But despite these positive signs, the overall economic situation is eroding household incomes and is likely to impede near term growth and demand.
The US economy grew 2.1% in 2022 and consumer spending remains on a slow growth path, supported by rising employment and savings accumulated during the pandemic, but it restrained by rising interest rates and rising debt and GDP growth is expected to slow tis year and next.
It may still be highly profitable for the shipping lines, but the transatlantic trade is not immune to the effects of a weakening market, with short-term rates out of Europe to the US, dropping below the long-term rate for the first time ever in early January and continued to widen through February, according to data released by Xeneta.
Excluding origin and destination terminal handling charges, the average spot rate is currently down 30% since the beginning of the year, while the long-term rate is down 7%.
The historic rate levels of last Spring were never going to be sustainable and even though they have softened considerably, the schedule reliability of many carriers is still poor. Pre-pandemic reliability sat above 80%, but it is less than half that now, with eastbound @ 50% and westbound @ 38%, and shippers are paying too much to deserve that level of service reliability.
Rates are largely stable and available capacity has been steady so far in 2023, while Container Trades Statistics (CTS) data shows volumes from North Europe to the U.S. were down last year just under 2%, and volumes from the East Mediterranean down 7.5%.
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