After a year of growth and stability, the transatlantic faces uncertainty due to economic factors, Brexit and the low sulphur cap’s impact
While the transatlantic trade was stable for the first nine months of 2019, it plunged into uncertainty at the end of the year due to factors including Brexit and the trade war, says ACL chief executive Andy Abbott.
He tells Container Shipping & Trade "The first three quarters of the year were not too bad; in the westbound direction ships to North America were pretty full up to September and there was trouble finding space at times. But the post-summer rebound was muted and now the atmosphere is one of uncertainty."
Suggesting what could be behind this, he comments "It is probably a combination of Brexit, the trade war and a general economic slowdown that has been worsened by the first two factors. December always has a surge of cargo from people wanting to ship their product out before year-end and January always has a post-holiday lull. The true test will come in February when the transatlantic market always rebounds.”
He says "The US-China trade war has made companies nervous, and the slowdown in Asia-Europe volume has panicked the alliances. Nobody wants to lose a single container anywhere, so they overreact to the smallest negative news.”
"The westbound trade was stronger than we thought it would be for most of 2019, and it will be interesting to see how the coming months develop. Several issues are raising their head now. Some have to do with Brexit, as we have customers concerned about sourcing."
He adds that in the other direction, North America to Europe is the worst it has ever been. "The general European economy is not as strong as it was a few years ago. There are a lot of things happening simultaneously and it is hard to say what is causing it: is there an over-riding economic slowdown or are people just nervous, postponing investment and keeping inventories low until the air clears?"
Two other events are also having an impact: cascading ships and the 2020 low sulphur cap. On the first, smaller ships on the transatlantic have gradually been replaced with 6,000+ TEU ships cascaded in from the Asian trades, negatively impacting the supply and demand balance.
Container Trades Statistics (CTS) volumes for the trade highlight the growth enjoyed in the first 10 months of the year. On the Europe to North America trade lane, TEU volumes increased year-on-year compared to 2018. They rose by 5.82% in Q1, 3.78% in Q2 and 2.39% in Q3. On the North America to Europe leg, they rose by 9.36% in Q1 2019 versus Q1 2018, 1.34% in Q2 and by 3.1% in Q3.
Looking at rates, the picture was more positive on the Europe to North America trade lane in 2019 compared to 2018, with CTS’ price index ranging from 80-84 points on a month-to-month basis, compared to 74-80 points in 2018.
The price index was weaker on the North America to Europe leg, with prices ranging from 67-69 points on a monthly basis for 2019 versus 66-71 for 2018.
Low sulphur cap impact
The IMO 2020 low sulphur fuel regulations are expected to make a dent in carriers’ financial results everywhere unless the carriers can pass along the increased costs to customers. Mr Abbott says "Carriers will get hit with additional fuel costs of US$250,000+ per voyage depending on the size of the ship and length of the voyage. If carriers cannot help their own situation by keeping supply and demand in balance, it is difficult to see how they will handle an extraordinary event like the new fuel regulations that will add US$10M+ to operating costs of a service.”
Pointing out the difficulties in covering the additional fuel costs, he says "With a very weak eastbound market and so many boxes moving back empty today, the westbound trade will have to bear a larger burden of those costs or the carriers will have to absorb them. That will not do any good to bottom lines which are already marginal for many.”
He sums up "At the moment, 2020 looks like a situation of more capacity, less cargo and higher operating costs due to the fuel impact – this could be a recipe for disaster, especially for the weaker players. It makes me thankful that ACL does not have a very big container capacity.”
ACL itself is protected somewhat from the impact of the higher costs of low sulphur fuel. Its entire fleet of new conro vessels are equipped with Alpha Laval scrubbers. ACL took the risk and made the investment when their new vessels were built. Given the current price spread between HSFO and VLSFO, that risk and investment has certainly paid off.
Indeed, Mr Abbott points out “Our advantages on fuel costs and our roro cargo base have insulated us in today’s uncertain market. We still need to recover the costs of our scrubber investment and scrubber operating costs, so we need improved revenue like everyone else, but we will have a more stable fuel picture as we go forward – unless, of course, the regulations change again. We are optimistic that intelligence will prevail in this more expensive new operating environment. Reasonable freight rates will buy the industry breathing room until the market stabilises.
Elsewhere, ACL has agreed a 15-year contract extension for container and roro operations at the Port of Liverpool until 2035. ACL is the largest ocean carrier operating at Liverpool’s Royal Seaforth Container Terminal (RSCT) and the port’s longest serving container carrier.
Peel Ports Group is making a significant investment at RSCT to accommodate ACL’s new fleet of G4 vessels. The passage entrance into the Seaforth Basin has been widened to facilitate safe access for the large G4 vessels into the terminal inside the locks. In addition, Peel Ports is investing in two new ship-to-shore cranes with increased height and reach and is adding capacity to the dedicated vehicle storage area to handle ACL’s growing cargo requirements. The overall project is expected to be completed during 2021.
Mr Abbott comments “Our new ships are higher than our previous ones, so the old cranes were not reaching over all of the bays. We needed bigger cranes to handle all the cells. Peel Ports agreed to make the investment to put new cranes in and new upgrades on locks and berths to enable us to get in and out faster. Since our new ships are twice as big as our previous ones, we need a significant productivity improvement and that is what this contract is all about, Peel Ports doing what was necessary to keep us in Liverpool for another 15 years.”
ACL’s relatively new fleet of five G4 conros are sized at 3,800 TEU of containers, 720 TEU of roro and 1,000+ cars, double the capacity of the older ships. The company started phasing the new vessels in at the start of 2016. The new fleet is more fuel efficient and is much greener than the company’s previous G3 fleet.
Nevertheless, there have been teething problems. Mr Abbott comments “We had a lot of mechanical problems with the new ships that required extensive drydocking time for repairs. Plus we had major terminal problems on both sides of the Atlantic – congestion from the new mega-vessels, new computer systems, crane breakdowns and labour issues. When you add some terrible weather to the mix, the net result was a lousy schedule for a couple of years, hitting bottom during the first half of 2019.”
German shipyard Blohm+Voss carried out the repairs on the new ACL ships. Mr Abbott explains the problems ranged from engine issues to rudders, stern ramps and car decks. “B&V did a marvellous job redoing the key vessel components. Most were replaced with European-built parts and the quality has improved.”
Happily, the problems have finally ironed themselves out. “We finished all the ship repairs and had our whole fleet in service for the first time in October 2019. We changed terminals and stevedores in a few places. Gradually, as this year progressed, we moved from being late all the time to being on time all the time – like the ‘old ACL.’ Now our equipment flows are more regular, we are not paying overtime at ports anymore and we can maintain our optimal speed. Our costs have gone down and our reliability has gone up. Our customers have noticed this and we are carrying more cargo as a result.”
“It has been a rough ride getting here, but we are finally regaining our reputation for reliability and high-quality personal service. The ACL history is one where you could set your clock by the ship. We’re back!”
Ports America’s heavy investment to benefit transatlantic trade
The westbound transatlantic trade was “robust” in 2019, but growth is expected to be more modest in 2020.
Ports America vice president containers Joseph M Greco tells Container Shipping & Trade “The strong US dollar has supported a robust westbound trade in 2019 where vessel capacity has increased roughly 10%.
“The strong volume growth experienced in 2019 is not expected to persist. 2020 is anticipated to see a small to modest expansion.”
Looking at opportunities on the trade going forward he says these “will be determined by the global economy and the strength of the US dollar to drive westbound volumes”.
“Some challenges facing the transatlantic lane are uncertainty around geopolitical factors, tariffs and a slowing global economy”
Speaking about challenges on the trade lane, Mr Greco says “Some challenges facing the transatlantic lane are uncertainty around geopolitical factors, tariffs and a slowing global economy. The physical challenges posed to a terminal operator to accommodate transatlantic’s vessels ranging from 4,000 to 8,000 TEU are relatively reasonable because the Tier 1 ports and terminals are already outfitted to accommodate the larger vessels utilised in the Asian trade lanes.”
The investments in infrastructure, equipment, and technology Ports America is making in key assets such as Port Newark Container Terminal (PNCT) and Seagirt Marine Terminal in Baltimore are poised to meet the requirements of the growing vessels and expanded capacity, says Mr Greco, adding “These investments also ensure that cargo moving through the terminals occurs in a highly efficient manner, which will positively impact customers’ supply chains.”
Mr Greco says “Ports America terminals are investing heavily in additional development to support growth and efficiencies that will benefit the transatlantic trade.” PNCT has almost completed a US$500M project that includes additional terminal capacity, berth and dredging improvements, four additional super-post-Panamax cranes, as well as several technology improvements that support the terminal and the new gate complex. Seagirt Marine Terminal has initiated a project that will modernise one of its berths with deeper dredging and four additional super-post-Panamax cranes to accommodate two 14,000-TEU vessels simultaneously. Additionally, a new terminal operating system was rolled out in November and several other technology and gate projects have been completed in 2019 or have been committed to start.
Snapshot CV: Andy Abbott (ACL)
ACL president and chief executive Andrew Abbott started his career at ACL in 1977, when he joined the company as a marketing analyst before progressing to sales administration manager.
He left in 1979 and held positions at Waterman Steamship Corp and Orient Overseas Container Line before returning to ACL in 1983 as vice president of US sales and marketing. He worked his way up the company to be promoted to president and chief executive in 2003.
His education includes an MBA in international marketing from New York’s Columbia University and a degree in economics from Humboldt University in Berlin.