Container lines in the trans-Pacific arena are sailing into a gloomy festive season. After a slump in traffic in October, the sector is headed for the first full-year contraction of traffic since the financial crisis of 2009.
Container volume in the eastbound sector slipped 3.9% in October, and observers are bracing themselves for more contraction ahead.
The decline is largely a reflection of the drop in China-US trade. According to global trade intelligence firm Panjiva, US imports from China – including Hong Kong – slumped 18.9% in October, marking six consecutive months of contraction.
“What we saw in October is the outcome of kind of what we have been concerned about, in terms of the Trump administration’s tendency to use tariffs, with the threat becoming a reality in July 2018, when the first round of tariffs were applied,” Panjiva research director Chris Rogers said. “And in October, we really saw the full power of what tariffs can do to international trade. October is a culmination of all of that. That is seen in the slump in imports from China.”
Rogers added that the drop in US imports is not limited to the nation’s trade with China, which reflects that the weakness is not only due to the trade conflict between Washington and Beijing but also a result of weakening global trade.
“The worrying part is that it is not just imports from China that have fallen. Imports from Taiwan are falling at a faster rate, as well as South Korea, the European Union, India. These are all areas where we are seeing declining imports,” Rogers noted.
US imports from Taiwan and South Korea slumped 8.9% and 7.9% respectively in October, Panjiva reported. Imports from India and Europe slipped 2.5% and 2.8% respectively.
The US tally for October shows double digit declines in imports of furniture (down 12.2%), apparel (down 12.4%), toys (down 10.3%), electronics (down 12.9%) and chemicals (down 10.5%).
The Port Tracker, which is published by the National Retail Federation and maritime consultancy Hackett Associates, projects a collective throughput of 1.93 million TEU through US ports for October, which is 5.2% off the level of October 2018.
US West Coast gateways have borne the brunt of the downturn. The Port of Los Angeles suffered the most dramatic slump, with container volume down 19.1% in October.
“With 25% fewer ship calls, 12 consecutive months of declining exports and now decreasing imports, we’re beginning to feel the far-reaching effects of the US-China trade war on American exporters and manufacturers,” Gene Seroka, the port’s executive director, said in a statement.
At the port of Long Beach, the decline was less drastic, slipping 2.4% overall. Imports sank 7.4%, but a 9.8% rise in exports alleviated the decrease in inbound container traffic.
Collectively the California container ports of Long Beach, Los Angeles and Oakland saw a drop of 12% in container volume in October, led by a 13.2% fall in imports.
For the first 10 months of the year, volumes at Long Beach and Los Angeles are down 5.4% and 1.75%, respectively.
While projecting a decline in December, the Port Tracker is upbeat on November throughput, but other observers paint a bleaker picture for the current month. Pointing to a bubble in US imports a year ago when retailers were rushing to beat the spectre of higher tariffs in January 2019, Panjiva sees a strong likelihood of further slumps in US imports.
This assessment is shared by Alphaliner. Noting that total trans-Pacific container volume grew by a slender 0.2% in the first 10 months of this year, its analysts predict overall contraction for the full year. They estimate that 2019 volume will come in 2% below the 2018 level.
“While volume growth has remained marginally positive in the first three quarters of this year despite the ongoing trade war between China and the US, the fourth quarter is expected to register a significant decline, with no repeat of the frontloading by shippers to avoid higher import tariffs at the end of last year,” it warned it its weekly report published on November 13.
Hopes for an infusion of demand from a strong peak are fading rapidly. After an increase at the start of November, the Freightos Baltic Index shows a rate of US$1,486 per 40-foot container from China to the US West Coast on November 15, down from a peak of US$1,558 a week earlier. Container rates from China to the US East Coast also declined, from US$2,745 to US $2,648.
Freightos chief marketing officer Eytan Buchman reckons that the drop in rates rings in the end of the peak season.
“Historically peak season prices hit their zenith in early November, with 2018 seeing peak season prices then shed 8% between the middle and end of November,” he observed.
“Early indications are that prices will indeed fall and that we’ve reached the peak of the peak season. While 2020’s new sulfur regulations may help keep prices from falling too dramatically, most signs are pointing to this being the full extent of the peak season,” he continued.
The outlook for the early part of 2020 is not inspiring for carriers. The Port Tracker predicts volume drops of 2.3% in January and 2.1% in February.
For shipping lines, this is a grim prospect. Buchman noted that this year’s peak prices in the trans-Pacific market have hovered around the US$1,500 mark, which is US$900 below the level a year ago.
Not all container lines in the market are suffering. According to Alphaliner, Maersk, Hapag-Lloyd, MSC and COSCO have been the main losers. The ONE alliance recorded a 1.8% rise in liftings in the first 10 months of the year, while Evergreen’s liftings have surged 10.3%.
By Ian Putzger
Correspondent | Toronto