Southeast Asia to Gain Even as Global Trade Faces Sluggish Future

International trade growth will not match the global economic pace over most of the next decade, according to a new report by the Boston Consulting Group (BCG). Trade patters wo;; change even as the war in Ukraine is reshaping strategic alliances and altering the flow of cross-border commerce.

World trade’s annual expansion rate will average 2.3% through 2031, compared with an increase in the global gross domestic product of 2.5% on average each year over the same period, according to forecasts from BCG.

Nikolaus Lang, a BCG managing director and a co-author of the report noted that four major supply chains - energy, agriculture, industrial metals, and semiconductors, account for about 80% of current inflationary price pressures.

BCG outlined that the next nine years of trade upheaval will create the following winners and losers:

•  The European Union will boost its trade with the U.S. by $338 billion, primarily driven by American energy exports to Europe. It will also expand its combined trade with Asian countries, Africa, the Middle East, and India.

•  Trade between the U.S. and China will drop by $63 billion.

•  Trade growth will also decelerate between the EU and China, growing by $72 billion, which BCG called “a modest increase compared with previous years.”

•  Russia’s trade with China and India will grow by $110 billion, “including $90 billion with China alone”, the consultancy said.

•  Southeast Asia will be the main winner, with an estimated $1 trillion in new trade tied largely to new commerce with China, Japan, the U.S., and the EU.

•  ASEAN trade with China will grow by $438 billion, the largest interregional progress.

Source: American Journal of Transportation

Containerships Returning to Intra-Asia Trades

Liner carriers are reassigning containerships on long-haul routes over to intra-Asia trades, Linerlytica noted. Consequently, intra-Asia tradelanes are facing rate pressure on several key corridors, which are operating below breakeven levels.

The total box ship capacity on intra-Asia trades is increasing again after a two-year decline, data from Linerlytica shows. Intra-Asia capacity peaked in early 2020 at 3m TEU but fell to a low of just 2.6m TEU by mid-2022 as carriers redeployed available capacity to the more lucrative Trans-Pacific and Asia-Europe trade lanes. Intra-Asia capacity is now back to 2.8m TEU and more newbuilds are set to enter the region shortly(see Figure 1).

Emerging export markets are continuing to grow in Southeast Asia, particularly Indonesia, Vietnam and Thailand, prompting carriers to improve their coverage.


Blank Sailings Reduce Asia-Europe Capacity by 27%

The three vessel-sharing alliances, which include ten of the world’s largest container carriers, have voided more than one-fourth of planned container freight sailings from Asia-North Europe and the Mediterranean Sea in the first seven weeks of 2023, reports Alphaliner. 27% of originally scheduled capacity, the equivalent of 53 voyages from January 1 to February 17, has been canceled.

“The big carriers do not only skip sailings to adjust capacity supply to the lower cargo demand, but also to avoid a further erosion of spot ocean freight rates from China. So far however, this capacity management has not helped much to lessen the downward pressure on rates,” writes the analyst firm.

Demand which typically ramps up in the weeks leading up to the Chinese Lunar New Year has yet to materialize, and carriers could decide to blank even more sailings if weak conditions persist after the holiday. 2M partners, MSC and Maersk, have canceled 24% of westbound voyages. Ocean Alliance members CMA CGM, Cosco, OOCL and Evergreen have blanked 23% of their sailings. THE Alliance members, Hapag-Lloyd, ONE, Yang Ming and HMM, have the highest number of cancellations at 36%.

According to Alphaliner, THE Alliance’s many cancellations are partly a result of its members having diverted more “North Europe to Asia backhaul sailings from the Suez Canal to the Cape of Good Hope route than other carriers” to save on Suez Canal toll fees.

Source: Shipping Watch

Falling Air Freight Rates Persist on Key Trades

Air Freight rates continue to decline on major routes with exception of the China-U.S. route which has grown 10%, the TAC Index shows. This development comes on the heels of early factory closures in China as the Chinese New Year (CNY) holiday nears but also in part because of new COVID cases and weak demand.

According to the TAC Index, rates are in steady decline across the board with several lanes approaching or already at pre-COVID levels (see Figure 1).

Looking back to 2019 and prior, Drewry’s East West Airfreight Price Index only registered rises in January or February, twice in six years. Otherwise, no matter when CNY fell, they fell between -1% and -3%. The exception was in 2017, when it dropped -10%.

The rest of January will pose a challenge for carriers, with factories likely to be shut now until February. According to a 2019 Drewry report, rates downtrended in March through May with the exception of the China-U.S. route. However, recent trade data indicates little demand from the U.S. in the fourth quarter. Consequently, both demand and production could be soft in the foreseeable future.

Source: The Loadstar

U.S. Rail intermodal faces challenging 2023, consulting firm says

A list of challenges including weaker demand, a competitive truck market and a shift in U.S. port activity away from the West Coast to East and Gulf ports that utilize shorter inland hauls, point to a challenging 2023 for rail intermodal, predicts FTR Transportation Intelligence.

During a webinar, Todd Tranausky, FTR vice president for rail and intermodal, said that both domestic and international rail intermodal segments will face an uphill battle in 2023. However, he noted growth could happen in the fourth quarter amid peak season.

Intermodal’s ability to compete with trucks has steadily eroded since the second half of 2022, and that will persist through the middle point of this year, according to Tranausky. “Intermodal [will have] an uphill climb relative to truckload in terms of attracting volume, and this just piles on in addition to the port shifts [that call for more short-haul than long-haul movements],” he said.

Despite a market environment favoring trucks, the response by railroads to pricing pressure will determine whether rail shippers see better rates, considering the higher operational costs following new labor agreements, Tranausky pointed out.

The slowdown of U.S. imports has unevenly impacted ports across the region. California ports have been hardest hit due in part to congestion from earlier in 2022 and the labor situation at West Coast ports. In contrast, import activity in the U.S. Southeast has started to ease back but not to the extent of California, while Gulf Coast container activity remains robust, FTR Chief Intelligence Officer Jonathan Sparks said.

In the trucking space, diesel prices and insurance are expected to put pressure on carriers, particularly those that operate primarily in the spot market, Avery Vise, FTR vice president for trucking pointed out. FTR’s estimate for active truck utilization, which the group says serves as a market tightness barometer, indicated utilization rates stayed high in 2021 and into the first couple of months in 2022 before falling sharply below a 10-year average.

Vise believes that rates could continue to soften over the next several months, potentially bottoming out around the third quarter of this year. But if the U.S. economy recovers heading into 2024, the trucking utilization rate could see a steeper upside as it seeks to catch up going into the new year, he said.

Source: American Shipper

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