News / Capacity increase on transatlantic container trade is "too much, too soon"

© Khunaspix Dreamstime.

Hapag-Lloyd has advised that it will upgrade the three ships it deploys on its April-launched AX4 transatlantic service – which it operates outside the G6 alliance – from 2,500 teu to 3,600 teu, due to “continued strong westbound bookings”.

But is this normally robust tradelane being sucked into the overcapacity malaise afflicting most other global routes?

Drewry said yesterday that its May assessment of the North Europe-North America route now appears to have been “too bullish”, when it argued that westbound headhaul volume growth would keep up with the additional supply being introduced.

However, this week it said that the “huge injection” of capacity by carriers in the early summer had proved “too much, too soon” resulting in “a predictable outcome for freight rates”.

The rapid arrival of four new services and the upgrading of existing links has increased westbound supply from 261,000 teu per month in April to 308,000 teu at the end of May.

The healthy growth in demand, from 259,000 teu in April to 273,000 teu in May, was outpaced by capacity growth and saw vessel utilisation levels drop from 99% to 89%.

Boosted by a strong dollar and weakening euro, exports from North Europe to North America grew by 8.4% in the first five months of the year, said Drewry – particularly to the US, which soaked up 9% more in the period, compared to the same five months of 2014, at 823,500 teu.

Trade to Canada grew by just 2% in the period to 248,000 teu, and the smaller Mexican market improved by 19% to 148,000 teu.

The tipping of the supply-demand balance meant that European shippers found space easy to book and led to lower spot rates. According to Drewry’s Container Freight Insight, the Rotterdam-New York spot rate fell 6% since the new services started in April, to around $1,820 per 40 ft.

“More softening is anticipated”, said Drewry although the level of volatility plaguing the Asia-Europe trade is “not expected”.

The transatlantic eastbound trade is under pressure – due also to the dollar’s strength as well as the downturn in the Russian import market, and saw a decrease of 8% in US exports to North Europe in the first five months of the year, compared with 2014, to 556,000 teu.

Generally the transatlantic market has traditionally been relatively balanced. However, with the increasing weakness of the eastbound leg Drewry calculates that the trade imbalance has now been extended to about 1: 1.5.

Drewry concluded: “Westbound trade growth should be relatively healthy for the remainder of the year due to currency factors, but it will not be strong enough to cater for the new tonnage meaning carriers will need to cut back if they want to force through rate increases.”