Eurozone quarterly economic growth in the third quarter of 2018 was a measly 0.1%, followed by 0.2% in the fourth quarter, the lowest level of expansion since 2013. German GDP declined in the third quarter of 2018 by 0.8% followed by growth of just 0.02% in the fourth quarter. Italy went into recession during this period and France, with its yellow vests, can only hope that it somehow avoids a recession.
Industrial output, which is impacted by consumer demand and exports, dropped in the same two quarters in both Germany and France. Business confidence has halved since late 2017 and the European Central Bank has forsworn any further interest rate increases. The business outlook and trade growth expectations are not looking good.
The North Europe Global Port Tracker newsletter last month projected imports to increase by 2.2% and exports by 1.7% and this may be optimistic if the first quarter of 2019 continues with weaker economic fundamentals.
Meanwhile the supply side for containerships continues to expand despite cancellation of voyages from Asia and a surge in lay-ups. We can therefore expect financial pressures on terminal operators and carriers and things are unlikely to improve going into 2020 as the European Commission looks like it is seriously considering revoking the carrier alliance exemption from anti-trust regulation from April 2020.
The carrier alliances argue that the bloc exemption is part of liner network logistics, but shippers counterargue that the alliances are leading to less choice and potentially higher prices — although I’m not sure how that can be argued — and that few benefits for the carriers are apparent as reliability has not improved.
Carriers are caught between a rock and a hard place. Economies of scale are difficult to achieve with the ultra large ships and there is no end in sight for further orders above the 22,000-teu level which exacerbates the supply/demand imbalance. Maersk’s recent announcement that they are not ordering larger ships has fallen on deaf ears in an industry that is still maintaining the mantra that bigger is better.