Accompanied by news of China’s earlier-than-expected reopening, the Chinese government reported that total goods export value fell 8.7% year on year (y/y) in November, against an anticipated 2% drop.
Chinese export value to the U.S. dived 25% y/y in November, doubling the 12.6% decline recorded in October. Chinese exports to the U.S. have fallen 27% since June. The U.S. accounted for just 13.8% of China’s total export value last month, down from 17% in July (see Figure 1).
However, the loosening of COVID restrictions is expected to improve containerized cargo flows. Pantheon Economics wrote, “We expect exports and imports to deteriorate in the coming months, before improving … over the course of 2023 as China recalibrates economic policy and weathers a likely COVID exit wave."
Evercore ISI analyst Neo Wang noted that China’s reopening moved up, saying it was “three months earlier than we expected” and cautioned that “recovery takes time”. He added that the economic outcome from the policy change could be delayed by “stronger public fear due to lack of COVID experience,” labor shortages due to spreading infections and concerns over government “backpedaling”.
Pantheon Economics pointed out that current weakness is more a result of falling overseas demand than lockdown disruptions to supply chains, which may not immediately translate into higher containerized exports. “China’s export product data shows a similar picture to that painted by Korean exports: falling shipments of electronics as consumers shift consumption patterns, while auto exports are strong as carmakers catch up on previous orders.”
Source: American Shipper
Predictions are for air cargo traffic to decline 4% in 2023 against this year’s levels. Yields and revenues are also expected to weaken Andrew Matters, IATA’s head of policy analysis stated at the IATA Global Media Day.
Cargo volumes are expected to fall 4.3% year-on-year, following an 8.1% decrease in 2022. “This reflects the challenging global economic backdrop in terms of global economic growth but also in terms of international trade,” Matters said.
As load factors return to pre-COVID levels, yields are expected to decline by around 22% next year. Current levels are unsustainable, having increased by 7% in 2022, by 24% in 2021 and by 50% in 2020 (see Table 1).
In addition to downside risks, Matters noted there were also upside risks to consider around forecasts. A near-term resolution of the conflict in Ukraine could mean a quick rebound in business and consumer confidence. This would lead to recoveries in economic activity, consumer spending, business investment and international trade.
“Also, supply chain disruption is continuing and to the extent that it will impact the shipping industry could present a source of upside risk for air cargo as well. We might get some trade that goes from shipping to air cargo for businesses to plug some gaps in supply chains,” he said.
Matters said a sudden demand spike would be immediately favorable for air cargo as the focus would be speed-to-shelf. “And if we were to get a sudden turnaround in confidence that fed through to demand, often what we find is that first recovery upswing favours air cargo because businesses need to get inventory into their warehouses and stock onto their shelves quickly.”
Source: Air Cargo News
Booking levels are showing no signs of increasing through the peak shipping period. Having moved up shipping schedules and increasing inventories in response to supply chain disruptions, U.S. and European businesses remain well-stocked with goods this year.
Container Trade Statistics (CTS) data shows the demand collapse escalated in October. In a LinkedIn post, Lars Jensen, CEO of Vespucci Maritime noted global demand measured in TEU declined 9.3% in October on a year-over-year basis, following an 8% drop in September, according to CTS data.
A Hapag-Lloyd spokesperson said there was “no clear picture yet” on market developments on trade lanes out of Asia, however acknowledged there was also “no extraordinary volume rush” to be seen before Chinese New Year. The spokesperson said any rebound would be determined by China’s zero-COVID policy and any new lockdowns, and what the orderbook from European customers looked like.
Eli Glickmann, CEO of Zim Integrated Shipping Services said there remained uncertainty over Chinese New Year shipments. “[The] December and January pickup is not being seen yet ... we are waiting to see the effect of Chinese New Year. We also expected the Thanksgiving and Christmas effect on the market, but it didn’t show up. We really don’t know what the effect of CNY will be,” he said.
Source: Journal of Commerce
Schedule reliability had the largest month-on-month (m/m) increase, improving by 6.6 percentage points to reach 52% in October. Year-on-year (y/y), reliability is 17.8 percentage points higher, returning it close to 2020 levels.
The average delay for LATE vessels has similarly improved to 5.56 days. “Average delay is now consistently below the 6-day mark and is closer to the 2020 level than the 2021 one,” said Alan Murphy, Sea-Intelligence’s CEO.
Maersk was the top performing carrier, with reliability at 56.4% in October 2022, followed by MSC at 52.7%. The remaining carriers have recorded schedule reliability of 40%- 50%. Overall, all carriers have seen m/m and y/y improvement.
Source: Sea-Intelligence
Port of Los Angeles executive director Gene Seroka expects labor negotiations between the International Longshore and Warehouse Union (ILWU) and the Pacific Maritime Association (PMA) will produce a deal by early February next year. “We’ll get through it in the early part of 2023,” Seroka said in an interview.
“And then it’s a matter of how much cargo shifts back because folks had that supply chain working and oiled the right way, and how much we’ve really got to go rustle back,” he pointed out. Cargo at the Port of LA has gone down by 25% in October against a year ago, reaching the lowest level since mid-2020.
About 20% of cargo volume has shifted to other U.S. hubs as shippers sought to “avoid labor disruptions”. Seroka said he “would not be surprised” if 5 percentage points of the 20% that’s moved doesn’t return to the West.
Nevertheless, 2022 looks set to be the second-busiest year in the port’s 115-year history despite the slowdown, Seroka pointed out.
The labor negotiations between the two parties affect 22,000 dockworkers at 29 ports, including LA and Long Beach.
Source: Bloomberg
