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  August 11th, 2016 | Written by

Economic Depression Compounds Woes of Med-U.S. Carriers

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  • Much of the eurozone is faltering and U.S. growth is sluggish.
  • Overcapacity and low rates on Med-North America trade.Overcapacity and low rates on Med-North America trade.
  • The peak shipping season may turn out to be underwhelming this year.

“It’s proving to be a bad time to be involved in the supply chain around the Mediterranean.”

That’s Drewry’s assessment, based on data released about the second quarter of this year showing France with zero growth, Italy and Spain with minimal growth, and economic expansion at half its level from the previous quarter in the eurozone.

The economy on the other side of the pond isn’t that much better. The latest data for the U.S. shows that the economy grew at a weak 1.2 percent annual rate between April and June.

“None of this bodes well for container lines operating on Mediterranean to North America services,” the Drewry report noted.

While traffic has plateaued at 120,000 TEU on the stronger westbound Mediterranean-North America leg, this marks a drop of four percent year on year. The eastbound leg was down 9.1 percent year on year.

With the peak shipping season approaching, shipping lines have cut some capacity on the trade to shore up rates. But the peak season may turn out to be underwhelming this year so that “cuts may prove to be too little too late on this trade,” said the report. “The cuts saw westbound capacity fall slightly to 186,000 TEU in July. However, to put this in perspective, capacity on this leg is still up 9.4 percent year on year. Eastbound capacity also dipped slightly to 171,000 TEU, but this still marks a year on year rise of 9.5 percent. Musical chairs seems to be the favored game on this trade as shipping lines opt for tweaks of services over sharp cuts.”

The result has been that utilization on the westbound leg is stuck at around 60 percent. Eastbound utilization dropped to a new low in May: 35.4 percent. Spot rates from New York to Genoa sank to $790 per 40-foot container in June.

“The downbeat economic outlook for the load and discharge ports on this services does not bode well for shipping lines that are not prepared to take clear action on over capacity,” the Drewry report concluded. “Decisive action needs to be taken to stem a capacity glut that will not be easily mopped up by either side of the Atlantic.”