New trade war threat to trans-Atlantic box trade

A slowdown in U.S. new car sales and the threat of trade war between the European Union (EU) and the U.S. are casting long shadows over the trans-Atlantic container trade. Even so, another year of 3%+ growth is expected by Drewry Maritime Research.

After expanding 5.4% in the first half of 2019, westbound trans-Atlantic container shipments increased by just 0.5% in the third quarter – the lowest quarterly growth since the last three months of 2016.

However, a pickup in demand at the start of the fourth quarter saw the trade enjoy record year-to-date growth of 3.7% through October, with U.S., Canada and Mexico imports up 4.4%, 1.5% and 2.8%, respectively, compared to 2018.

Source: SONAR

Declining U.S. car sales

One reason for the slowdown during the second half of the year was a drop-off in shipments of motor vehicle components to U.S. plants, with American new car sales still in retreat from the 2015 record of 17.5 million purchases.

“Despite a strong economy, falling unemployment and rising consumer confidence, there has been a gradual decline in numbers sold and this year the figure is likely to total 16.9 million,” noted Drewry.

“One explanation for this trend is that after many years of strong sales, many American consumers are now driving vehicles that do not need to be replaced so often. Newer vehicles tend to be more durable and hold up longer than cars made even a decade or two earlier.”

WTO escalation threatens trade

The demand outlook on the trans-Atlantic headhaul trade is also being muddied by the threat of an escalating trade war. At the beginning of October, the World Trade Organization (WTO) authorized the U.S. to apply new tariffs of 25% on $7.5 billion of EU imports following a 15-year dispute over illegal aircraft subsidies granted to Airbus, the European aerospace company.

“The new tariffs went into effect on Oct. 18 and thus between the WTO’s decision and application date there was precious little time to fast-forward any shipments, unless it was by air freight,” said Drewry.

The analyst believes tit-for-tat tariffs could continue in 2020. It notes that the U.S. had originally sought permission to apply the tariffs to $11 billion of goods, which would have affected items ranging from “wine, cheese, yoghurts and olive oil to fine wool suits, jumpers, bed linen and even women’s nightwear.”

Moreover, the EU has threatened to retaliate against U.S. goods. “The WTO is expected to decide sometime next year on what tariffs can be imposed against the U.S. for its subsidies to Boeing,” noted the analyst.

Resin exports boost backhauls

Backhaul volumes from the U.S. to Europe between January and October rose by 2.9%, which translates into an additional 50,000 twenty-foot equivalent containers (TEUs) during the course of 10 months. “Almost two-fifths of those extra boxes were loaded with resin shipped out of the Gulf Coast, where gains to date have registered over 17%,” said Drewry.

“New resin plants have been established along the Gulf Coast, fueled by access to low-cost shale gas produced in the region. More capacity to produce resin is on its way and that should ensure that overall eastbound volumes should continue to grow in 2020.”

With so many unknowns on the headhaul trade, Drewry admits that making 2020 trans-Atlantic forecasts is tricky.

“When tariff wars come into the mix, forecasting future demand becomes a difficult science as one cannot be sure how consumers will react,” said the analyst.

“Given, though, the current strength of the American economy and high levels of consumer confidence, Drewry believes the headhaul trade will continue to grow next year by around 3%.”
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