The ebb and flow of trade relations between the U.S. and China have had a significant effect on Pacific container markets, whether cargoes are discharged on the West Coast or transit the Panama Canal to the East Coast.
Now, trade tensions are heating up between the U.S. and Europe. The U.S. is poised to begin adding tariffs on $7.5 billion of European goods including wine, cheese and aircraft starting Oct. 18.
On Oct. 16, President Donald Trump raised the possibility of additional tariffs on EU goods. He said that if the EU was unwilling to reduce the trade imbalance with the U.S., “I could solve the problem instantly. It would involve tariffs on European products coming into this country. For right now, we’re going to try and do it without that.”
This begs the question of whether a trade dispute between the EU and U.S. could affect trans-Atlantic container volumes, just as the trade conflict with China has impacted the trans-Pacific.
Pricing data from Freightos provides a good window on the current state of play in the trans-Atlantic container trade. Freightos publishes daily indices that measure the cost to ship a 40-foot-equivalent-unit (FEU) container. Assuming there are no major changes in vessel supply, shipping rates provide a reasonable proxy of cargo demand.
The Freightos index covering the Europe-to-U.S. East Coast lane (SONAR: FBXD.ENAE) confirms that rates are on the rise. Between Aug. 1 and Oct. 15, container shipping rates have increased 18%, to $2,016/FEU. Rates are up 10% year-on-year.
This is a normal pattern of healthy price movement. Rising year-on-year rates imply growing trade volume, while the jump since August follows the typical peak-season pattern as autumn demand traditionally increases.
Now compare this to what’s going on in the trans-Pacific market. China-to-U.S. West Coast rates (SONAR: FBXD.CNAW) are now down 47% year-on-year and 1% since August. China-to-U.S. East Coast rates (SONAR: FBXD.CNAE) are down 23% year-on-year and 5% since August.
The year-on-year decline in the trans-Pacific is likely due to tariff-related decisions in 2018. Last year, U.S. importers prepurchased goods and brought them into the country early to beat looming tariff deadlines. This pulling forward of volumes inflated last year’s numbers and decreased 2019 volumes (because inventory was already in the country), creating negative year-on-year comparisons.
Meanwhile, the decline in the trans-Pacific shipping prices during the typical autumn peak season suggests weak demand – and potential trouble for container lines.
The high relative outperformance of the U.S. trans-Atlantic inbound trade versus the trans-Pacific inbound trade highlights the importance of watching the Trump tariff news closely. If trade relations with the EU take the same confrontational path as they have with China, the fallout could ultimately be seen in the container shipping price data.
Editor’s note: Freightos has a business agreement with FreightWaves that includes editorial coverage.