The European Union was expecting an era of economic recovery in Europe after the Covid epidemic. The European Commission, with the support of NextGenerationEU, has been working to ensure that EU countries emerge from the pandemic stronger, transforming their economies and creating new opportunities and jobs.
With the funds secured by NextGenerationEU, European freight forwarders have ordered giant container ships specifically designed for the Europe-Asia route. But the expected economic recovery has been shattered by the war against Ukraine, which has severely curbed economic activity and fuelled inflation. We are already seeing that the effects of this are far more powerful than those of Covid. The European Commission wrote on 11 September: « The fall in domestic demand is having more severe consequences than expected. » The Commission now forecasts real GDP growth of just 0.8% in the EU in 2023. In contrast, the US expects growth of 2.2%.
The Ukrainian-Russian war is having a major impact on European trade, and in particular on the trade in tankers and dry bulk. Container shipping is feeling the consequences strongly as economic pressures are holding back volumes.
« The war has caused a remarkable pullback in real activity in Europe and has driven up inflation significantly. The war reduced domestic and external demand by weighing on consumer sentiment and foreign GDP, and … led to a rise in domestic inflation, which had a further dampening effect, » says the Swiss National Bank study.
It is no coincidence that the European Commission downgraded its economic outlook for the European Union in its latest forecast, published on 11 September. « The weakness in domestic demand, in particular consumption, shows that high and still rising consumer prices for most goods and services are taking a heavy toll – more than expected, » the European Commission said in a statement.
As a result, the weight of trade between Europe and Asia has increased considerably, as demand in China has fallen far less than in Europe. It is no coincidence that 2021 was a record year for maritime transport. Investors ordered new container ships by the hundreds in response to the success. Clarkson Research’s analysis shows that freight revenues set a record despite the deterioration in the quality of maritime freight. On the main trade routes, disruption was a constant, with queues at ports and capacity problems. Yet average freight rates for 20-foot containers from Shanghai to Europe have more than quadrupled, from $1,204 to $619.
Indeed, maritime transport is highly exposed to trade along the Europe-Asia axis, which is in turn exposed to economic and political developments. The situation of EU-Asia maritime trade has been severely affected by the European Union’s anti-China policy, which is fundamentally destabilising the sector.
After Covid, transport capacity on the Asia-Europe route increased and demand fell as a result of the war. « Global container shipping capacity has been expanding by an average of 190,000 TEUs (20-foot standard containers) per month since April this year, » reported Linerlytica, a specialist in container shipping analysis. « This is the fastest growth rate ever recorded in the container market and growth is set to continue for the next two years, » it said. The newly built vessels are in the Megamax category, based on the expected growth in trade volume, and are capable of carrying between 20,000 and 24,000 standard containers each. These Megamax vessels are giants designed specifically for the Asia-Europe route, but are unusable on other routes because port terminals are unable to handle them.
Due to the EU’s anti-China policy, freight rates on the Asia-Europe route have fallen again after a brief upturn in August. Freight rates are now below 2019 levels and heading towards a 2015-2016 low. At the time, this led to the bankruptcy of some carriers. The difference now is that in the post-Covid recovery, in 2021, ocean carriers are very much in the black, so they can still bear the financial burden of Europe’s rise in global trade.
The Danish company Maersk, the world’s No 2 carrier, has been hit hardest by the war and EU policy. In the first six months of this year, 22.8% of the company’s turnover was accounted for by transport on the Asia-Europe route and 23.7% by the Asia-US trade route. Germany’s Hapag-Lloyd is the world’s No. 5 carrier. The Asia-Europe route accounted for 18.2% of its turnover in the first half of the year, compared with 14.7% for the trans-Pacific route.
The decline is partly due to EU environmental policy, as the new EU directive only allows the construction of environmentally friendly ships. As a result, a third of the European fleet is now « eco-modern », i.e. using alternative fuels and/or at least one energy-saving technology. For perishable agricultural goods, it would be crucial that the goods reach their destination as soon as possible. With European ‘eco-modern’ ships, cherries from Chile take weeks to reach China and it is by no means certain that they will reach the market in a consumable state.
Image : https://www.vesselfinder.com/fr/vessels/details/9442172
Par : Endre Barcs
