U.S. Manufacturing Unexpectedly Shrank as Orders Slowed 

“The great boom in container shipping was from one-time factors that will never come back,” Ng Yat Chung, CEO of NOL, told the TPM Asia conference.

  It’s well-known that global container volumes are slowing. But the impact this will have on the industry isn’t nearly as well understood, if only because a new era of slower growth is arguably just beginning.

Long-term slower growth isn’t simply a factor of the sluggish growth or recession in Europe and the U.S. since the financial crisis.

Rather, it’s a secular, likely irreversible trend driven by the reality that the industry’s marathon heyday — when volumes achieved cumulative annual growth of 7.9 percent between 1990 and 2012, according to Drewry — resulted essentially from one-time factors. The outsourcing of manufacturing from the U.S. and Europe mostly to China and the latter’s accession to the World Trade Organization in 2001 were critical. The indulgence in credit that spurred a final, unsustainable growth spurt leading up to the financial crisis followed.

In reality, container growth was declining even prior to 2000. As a factor of global GDP, container volumes grew 3.8 times GDP between 1974 and 1980 — a period that saw conversion of trade from general cargo to containers — 3 times GDP between 1981 and 1990 2.8 times between 1991 and 2000 and 2.5 times GDP between 2001 and 2010. Container volumes as a percent of GDP are forecast at just 2.2 percent from 2011-13, according to figures presented by Barclays analyst Jon Windham at the JOC TPM Asia conference in October.

This begs the question: Where will future sources of growth come from? Certain commodities, including identity-preserved crops and refrigerated goods, are shifting from bulk or breakbulk ships to containers, and some  air cargois shifting to ocean as shippers seek lower transportation costs. But all those are on the margin.

Another source of long-term, sustainable growth that intuitively one might think would support  prior growth rates is the developing world. According to Barclays, the world’s fastest-growing  trade lanes  for manufactured goods in 2011 and 2012 were, in this order, North Asia to South America, Middle East to Asia, South America to Asia, South Asia to the Middle East, and Europe to the CIS countries. Growth rates in each of those lanes exceeded 15 percent for the two-year period.

This  shift toward trade within the developing world  was reflected in a chart Windham showed the Shenzhen audience showing average distance traveled for Chinese exports growing 14 percent to nearly 6,000 miles between 2001 and 2006, peaking between 2007 and 2010 and falling 6 percent by 2014.  In other words, as trade within the developing grows, it often means shorter transits between countries that are closer to each other than Europe or North America is to Asia.   

“The great boom in container shipping was from one-time factors that will never come back,” Ng Yat Chung, CEO of NOL, told the TPM Asia conference.

The implications for  container lines  and their customers might be significant.

If the industry had trouble balancing supply and demand and achieving adequate levels of profitability in an era of predictably rising volumes, how will it accomplish this when volumes aren’t growing as fast? How will it resist the temptation to build ever-larger ships that yield lower per-slot costs but might not find enough cargo at profitable rates or be appropriate for smaller, faster-growing trades?

Will sources of capital wise up to diminished expectations and find other means to park their money? Can carriers curb their paranoia over losing market share and find a way to grow with the market? How can it work through its overcapacity and scale back ship ordering over the long term?

Until the carriers get this right, it will be more of the same for the industry — high volatility, low profits, general discontent.   

Peter Tirschwell is senior vice president of strategy at UBM Global Trade. 

SCFI This Week: US West Coast Rates Drop 2.1 Percent 

Spot container rates from Shanghai to ports in North Europe, the Mediterranean, the U.S. West Coast and the U.S. East Coast all  lost ground this week, although at a slower rate than in recent weeks, according to the weekly Friday release of the Shanghai Container Freight Index.

Rates to North Europe fell 4.7 percent to $1,028 per TEU. Rates to North Europe have fallen for four consecutive weeks, dropping 31 percent from $1,491 per TEU during that period. All of the gains achieved in the Nov. 1 rate increase have now been eliminated.

Rates to the Mediterranean fell 5.1 percent to $746 per TEU, the fifth consecutive weekly decline. The Med rates have now lost 41 percent of their value since late October.

Rates to the U.S. West Coast dropped 2.1 percent to $2,046 per FEU. West Coast rates stood at $2,730 per FEU in late September, meaning they have dropped 25 percent since then. The weakness in West Coast rates prompted carriers in the Transpacific Stabilization Agreement to postpone a $400 per FEU increase to the West Coast from Dec. 1 to Dec. 15.

Rates to the U.S. East Coast dropped 1.5 percent to $3,099 per FEU. East Coast rates stood at $3,966 per FEU in mid-September, so they have lost 22 percent since then.

Rates from Shanghai to the Persian Gulf and Red Sea, meanwhile, surged from $626 to $863 per TEU this week, according to the SCFI index. The SCFI composite index gained 5.48 percent this week in part due to this increase.

“The fundamental question is, will carriers make any significant capacity adjustments? At present it appears not, at least not to the degree that is required to stop the rot,” ICAP said in a weekly commentary. “On the demand side of the equation cargo remains weak, the only option is a supply led recovery.”