The year of 2002 has been a wild ride in the liner shipping industry in the Transatlantic. Container volumes between Europe and North America have been up 11 percent on the westbound trade and 13 percent on the eastbound over 2001 year-to-date, but new ship tonnage and the difficulty in forecasting supply-demand relationships in pricing strategy have resulted in market freight rates falling by 15 percent on average. The outcome of this is red ink for the carriers, and a bargain in transportation costs for the shippers and consignees active on this trade lane.

To make matters worse, the Transatlantic eastbound-westbound imbalance has increased dramatically over the last three years, going from a nearly balanced situation (10 percent heavier westbound) to a staggering gap today (62 percent heavier westbound). America's continuing strong retail and consumer spending, the strength of the U.S. dollar, and the inability of American firms to tap export markets coupled with threats of duty increases have all combined to extend the imbalance of imports over exports in the Atlantic.

Differences are also appearing in the mix of port usage along the East Coast, which adds to the lines' problems with equipment and vessel utilization.

What are the carriers doing in response, and how might these initiatives impact shippers?

Carriers have been taking ship capacity out of the market, with COSCO, K-Line, Hanjin, Senator and Yang Ming all removing tonnage. This action is intended to reduce costs of asset underutilization and restore supply-demand balance, and thus support higher freight rates when no other value-added services impact rate levels.

Hanjin and CMA CGM have each cut their previous pendulum services into separate direct trades, while at the same time changing their slot commitments with other carrier in those trade lanes. Pendulum services generally address the imbalanced nature of the trades, but by managing several elements of a logistics and deployment strategy, these carriers are able to reduce their net commitment to slots.

The TACA carriers are pushing rate increases in the westbound, or heavy, direction. The westbound container in effect must pay for the imbalance cost created in the system, and a westbound rate increase targets this cost gap. The fall increase was scheduled at $320 and $400 for a 20'and 40' box, respectively. One question here is whether rate increases will hold, and whether the carriers can offset the 15 percent rate declines and get back into the black.

Will carriers pull out of the Atlantic trade? Some years ago APL discontinued their Transatlantic service, Cho Yang withdrew from the trade and eventually closed down last year, Evergreen is withdrawing from the Mediterranean direct service for now, and others are considering wholesale strategy changes. The importance of a market presence in the Atlantic will certainly be determined by the strategies of the individual lines, with carriers such as P&O Nedlloyd or CMA CGM, for example, having a different perspective than APL or NYK.

Finally, there is the ever-present issue of shipping line consolidation. This is not a new subject, and is certainly not restricted to the Atlantic carriers, but with huge financial losses in 2002, and limited hope for improvement in 2003, mergers and acquisitions become more likely.

We would expect these kinds of changes to continue in a market that loses money for the carriers, and at a time in which there are no other markets enabling the lines to subsidize an under-performing service.

Sidebar: TACA carriers

• Atlantic Container Line
  
• NYK Line
  
• Hapag-Lloyd
  
• OOCL
  
• Mediterranean
  
• Shipping Company
  
• P&O Nedlloyd
  
• MaerskSealand