Load factors: Trade dispute continues to affect transpacific trade

Asia-north America trades could see the first full-year downturn since the financial crisis. But low capacity growth is keeping load factors in check

Service cuts providing a welcome reduction in supply

TRADE disputes are intensifying around the globe to the extent that trade economists have coined the new acronym, FTDs, to refer to free trade disagreements.

These disagreements and the derived trade appeals will be soon be put on hold due to the shortage of judges on the appellate body of the World Trade Organisation. From December 11, there will not be enough judges to work on these disputes due to the two-year veto of new appointments exercise by the Trump administration.

The transpacific trade lane could see the first year-on-year decline since the financial crisis hit in 2009, causing a contraction of more than 10% on the volume moved between the Far East and North America.

In the past decade, world trade has been growing at a slower rate. However, despite this slowdown, the global economy has shown some resiliency, which could be put on test if trade disputes between big countries remain unresolved and are perceived as a new norm.

The transpacific trade lane could see the first year-on-year decline since the financial crisis hit in 2009, causing a contraction of more than 10% on the volume moved between the Far East and North America.

Trade data suggests the reduction for 2019 full year could be in the region of 2%, mainly driven by the dispute still ongoing between the US and China on tariffs, which show no sign of a resolution in the immediate future. Speaking at the NATO summit in London at the beginning of December, the US president indicated that a trade deal with China could wait until after the 2020 presidential election.

On the supply side, the west coast remains the major market for the transpacific trade lane with a total of 48 services, stable compared to last year and only four more compared with 2009.

Compared with 2009, the total capacity deployed on west coast services is estimated to have increased by some 45% with the dominant alliance being the Ocean Alliance, which is estimated to have deployed 8.6m teu in the fourth quarter of 2019.

The expansion of the Panama Canal in 2016 has been the key factor in the increase in east coast services, whose deployed capacity increased from 4.9m teu in 2009 to 8.6m teu in 2019, with the number of services increasing from 12 to 18 and the average vessel size deployed increasing from 4,777 teu to 8,932 teu.

With approximately 3.5m teu of deployed capacity, Ocean Alliance is the key player to the east coast as well.

Looking at utilisation levels, for the fourth quarter of 2019 an overall improvement is projected, with an expected increase from less than 62% in fourth quarter of 2018 to 65% in 2019, with the eastbound direction expected to exceed a load factor of 85%. This result is mainly driven by a reduction estimated in the allocated supply.

Transatlantic capacity changes (Fourth quarter 2019)

• The 2M Alliance – PEARL/TP6 has joined up with the 2M Alliance – SHOGUN service to create a 16-ship pendulum with no significant increase in capacity
• The Alliance – FP1 North Europe – Far East – USWC pendulum began operating in April 2019 with 15 x 9,000 teu vessels; the service was the result of The Alliance combining the North Europe – Far East FE1 (10 x 9,000 teu) service with the two transpacific PS1 (5 x 4,500 teu) and PS2 (5 x 4,800 teu) services combined in a single string
• For the Ocean Alliance, the opposite occurred with the transpacific element of the CMA CGM – CIMEX7-TPX/MEX/CMEX/ME5 pendulum service separating to become a standalone service, Ocean Alliance – CPNW
• ZIM and 2M Alliance co-operating on the transpacific trade lane, through a mix of jointly operated services and slot agreements

•  The Alliance – PN3 has seen a reduction in capacity of 37%, with vessels of 13,400 teu replaced by 8,400 teu
• Ocean Alliance  – JDX/TPS/AAS4 service has seen deployed capacity reduce by 18% compared with fourth quarter of 2018
• APL – EXX service has seen a reduction of 21% in deployed capacity
• ZIM withdrew its ZMP service in the second quarter of 2019. The service, which consisted of two loops; East Med – Far East and transpacific (west coast); deployed 250,000 teu worth of capacity. The withdrawal has largely been covered by the recent partnership with 2M Alliance.

First published on Lloyd's List website December 2019