Shrinking Asia -> Europe cargo volumes indicating an economic downturn in Europe

Container-shipping companies have been growing rapidly for years, ordering more and more container ships with higher capacities. This year, the capacity of container ships worldwide has grown 15%. With globalization widening the distance between production locations and consumer markets, demand for sea fright has been growing by double digits annually for seven years in a row. Shipyards still struggle to satisfy demand for new and bigger ships. However, this development has stalled. According to the Far Eastern Freight Conference (FEFC), a 17 member organization that makes up about 70% of trade between Asia and Europe, cargo volumes from Asia to Europe are down by 0.48%. This might not sound too dramatic, but this came totally unexpected. In December 2007, Rod Riseborough, the FEFC’s chairman, predicted a 19% growth. The turnaround can be attributed to many factors. The rising cost of fuel drove up the operating costs of the freight lines and prompted them to hike up prices and demand surcharges. The shipment cost of one single container have risen decisively since 2001 and with demand soaring, surcharges and price increases were no big deal. But now, with weaker economic growth worldwide, overcapacities and a drop in demand could lower prices decisively. Last but not least, sharply rising labor costs in China prompt some companies to relocate production to other countries in Asia or even to countries closer to the big consumer markets in Europe and North America.

Not only the outlook for the container shipping sector is alarming, but also the outlook for the economic development in some European economies. Major retail chains are now ordering merchandise for the Christmas sales. A lower volume of orders shows that retailers expect weaker Christmas sales. This is indicating that European economies are cooling down. As recent polls show, consumer confidence is down all across Europe. Denmark has already fallen into recession, Spain, Ireland, Spain, Italy and France are all on the verge of a recession. Growth rates in Germany are also declining and domestic demand is weak. With the eurozone’s economic performance deteriorating, the euro’s rise against the dollar could also have come to an end. Despite high inflation rates, the ECB let interest rates unchanged.



Filed under Economy

4 responses to “Shrinking Asia -> Europe cargo volumes indicating an economic downturn in Europe

  1. By the way situation have been changed since August….

  2. economax

    sure, today’s situation is very different because two decisive factors have changed: first, oil prices have fallen to the lowest level in years – which will inevitably be followed by a painfully steep rise once the economy recovers – and second, as all parts of the world are being hit by the crisis, demand for shipping is also down and rates are at rock-bottom

  3. Pingback: grim outlook for the container shipping industry « What Matters

  4. I follow your posts for quite a long time and must tell that your posts are always valuable to readers.

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