Asia-Europe cargo volumes could start to get a boost from the recently agreed Japan-European Union (EU) ‘cars for cheese’ free trade deal as soon as next year.
Rather less clear is the potential indirect impact, if any, on those volumes of a separate recent major political development − the import tariffs spat between the US and China.
Right now, the prospect of any increase in trade from either of those developments would be particularly welcomed by container shipping lines following the publication of figures earlier this month confirming that the industry’s Asia-North Europe volumes over the first half of this year were “disappointing.”
The bilateral free trade deal between Japan and the EU, officially an Economic Partnership Agreement (EPA), was signed in mid-July and, subject to final ratification, is currently expected to begin taking effect in 2019.
A recently published European Commission (EC) assessment of the anticipated economic impact of the EPA suggests key sectors set to benefit from the agreed tariff reductions/removals in terms of increased exports are Japan’s automotive industry and EU agricultural food products – hence the ‘cars for cheese’ tag adopted by some analysts. Both parties will also remove import tariffs on a range of other industrial goods.
Overall, suggests that EC assessment, the trade deal should boost total Japanese exports to the EU by 23.5% or more than €22 billion (US$25.8 billion) by 2035, while EU exports to Japan should see a 13% or €13.5 billion (US$15.8 billion) increase.
By sector, the largest increases in Japanese exports to the EU are expected to be in motor vehicles (up more than 50% or €8 billion by 2035), followed by minerals and glass (+83% or €3 billion) machinery and equipment including medical, precision and optical instruments (+14% or €3.5 billion) and chemicals (+30% or €3.3 billion).
As for EU exports to Japan, the sectors expected to see the largest increases are textiles, apparel and leather (+220% or €5.2 billion by 2035), dairy products (+215% or €729 million), processed foods (+52% or €1 billion), motor vehicles (+11.5% or €1.2 billion) and chemicals (+7% or €1.6 billion).
Such increases should significantly boost cargo volumes moving in both directions between Japan and the EU. Far less clear right now is which flows are likely to benefit most and when.
David Buckby, an economist with Transport Intelligence, a UK-based provider of worldwide logistics industry research and analysis, suggested some of the first sectors to see an EPA-related increase in cargo traffic could be those involving the air or sea movement of automotive components from Japan to the EU.
Expanding on that point, he explained that while EU tariffs on imported Japanese cars would be phased out over a period of seven years, those on car parts would be eliminated almost immediately the deal came into force to help retain production of Japanese brand cars in the EU.
“While finished cars are shipped almost exclusively by sea, components also move by air so it is difficult to quantify how much of that Japanese vehicle component traffic will in future be moved by those different modes,” said Buckby.
Other cargo sectors which might experience a fairly early boost from the new trade deal, he continued, could be those involving the ocean freight movement of EU chemical and clothing exports to Japan.
“Japan is going to eliminate duties on chemicals, textiles and clothing, metals, ceramics, glass, cosmetics, plastics and jewellery, for example, immediately when the agreement comes into force which will probably be some time in 2019,” he stated.
“According to the EC impact assessment, probably the most significant beneficiaries in that context will be EU clothing and chemical exports because Japan’s import tariffs on those products are relatively high at the moment and they are going to be reduced to zero.”
As for the EU export sector widely viewed as likely to benefit most from the new trade deal in the longer term, agricultural food products, Buckby said it was difficult to say which mode of transport might see the biggest increase in cargo volumes.
“Some of those products are perishables, which are often, but not exclusively, associated with air cargo. However, a lot of those products are also moved in ocean reefer containers and with that kind of technology continuing to improve, greater volumes are going by sea,” he stated.
Running concurrent with the announcement of the new Japan-EU trade deal has been an escalation of the President Trump-led import tariffs war between the US and China. The latter development has led some observers to question whether a continuation of that situation could indirectly lead to an increase in EU exports to China and related eastbound cargo traffic.
“If you look at what China imports from the US, agricultural products are important but it also buys high-value and advanced manufactured goods. If Chinese import tariffs on those go up (in response to US tariffs on imported Chinese products), those are sectors where EU exporters might be able to step in. There could potentially be some substitution of EU products for US products,” said Buckby.
“However, it is quite difficult to say anything concrete on that at the moment, particularly as President Trump appears to change his mind quite frequently.”
More immediately, figures just published by Drewry Shipping Consultants, a UK-based provider of research and consulting services to the maritime industry with offices in London, Delhi, Singapore and Shanghai, show that westbound container traffic from Asia to North Europe in the first six months of this year was almost identical to that in the first half of 2017 at nearly 4.9 million TEUs.
“Much of the problem with this trade stems from weaker demand in the two largest inbound markets of the UK and Germany, which account for approximately two-fifths of westbound flows,” commented Drewry in the August 5 edition of its weekly online publication Container Insight Weekly.
Those “disappointing first half volumes from Asia to North Europe” were at odds with other booming markets around the world, continued Drewry, although there were signs of improvement as rates recovered.
Expanding on that last point, Drewry said the introduction of new ultra-large container vessels had seen the amount of capacity available to the (Asia-North Europe) market escalate sharply over the past few months, with westbound slots up by approximately 10% year-on-year in July.
“The addition of big new ships at a time of weak demand proved to be a toxic combination for carriers in the early months of the year and westbound spot rates were heading below the psychologically important barrier of US$1,000 per 40-foot container,” it stated.
“Since then, ship utilization has improved slightly and carrier efforts to restore rates met with some success. As of last week, average spot rates from Shanghai to Rotterdam were close to US$1,800/40ft container in mid-October, as reported by Drewry’s World Container Index, some 56% higher than the April 26 nadir.”
In summary, suggested Drewry, the Asia-North Europe market was “slowly heading back towards carriers and with planned capacity reductions in the pipeline, the upwards shift for freight rates should be maintained during the peak season.”
By Phil Hastings
Correspondent | London