Shipping

Might China finally be moving into a larger consumption role? There has been a massive shift in the ratio of Chinese exports vs. imports, in just one year. It could be just a temporary result of the downturn in the US & Europe, but it appears MDS Transmodal believes we're seeing a long-term change in trade patterns.

“In Q2 2008 there were only 56 tonnes of Chinese imports for every 100 tonnes exported. One year later, that figure has grown to 80 tonnes. If that trend continues, container lines will have to seriously address their strategies.” He says that Chinese exports drive the overall demand for global shipping capacity. “Here the picture is bleak. A year on year fall of 23% for Q1 2009 has been followed by a 22% decline in Q2 2009. The best that can be said is the decline has been arrested. Q2 2009 results are 24% lower than in Q3 2008, the peak quarter of all time.”

The consultancy has also examined the destination of Chinese exports and concluded that the decline in the ability of the West to consume Chinese goods is widespread. Ranking destination countries by their container tonnages received in 2008, growth cannot be found for Q2 2009 until China’s 22nd ranked export destination is reached (Saudi Arabia).

The 2nd quarter Chinese trade data, coupled with the announcement that US GDP continued to fall over the same quarter leads MDS Transmodal to one conclusion. “Our analysis of the trade data provides tangible evidence of a restructuring of the economies of the Far East and the Western world,” says Mr Garratt. “China, and probably the rest of the Far East except Japan, is sucking in the exports it needs to support its domestic economy that continues to expand – without needing to export in the same quantities it used to.”

One of my favorite signals for the world economy- container trade volume, still looks like it will be pretty weak for 2H09. Industry research firm Drewry recently came out with a -10% forecast for 2009, which is a large change from the days of low to mid teens volume growth (~3x World GDP). Anything in the low single digits of growth would be weak historically, but if we start to approach a double digit decline then things are clearly still pretty rough. And Drewry isn't alone in terms of their outlook. Our friends at Transport Trackers recently issued a note whereby they believe that while Drewry may be slightly too pessimistic, we should still expect high single digit declines as the base case for 09E. This indicates further hard times ahead.

Drewry’s Shock and Awe: Drewry, not always known for pessimistic forecasts, recently shocked the market with a ‐10% container growth forecast for 09E… More depressing perhaps is Drewry sides with long‐term growth of 6‐7% (we agree) and not 9‐10% type growth long built in to owner‐operator forecasts, based on historical experience. We can’t get quite as low a 09E ‐10% global estimate yet but agree, of course, with a longer‐term shift down for containerization, even while seeing some early‐10E or mid‐10E rebound post 09E deep bottom…

TT also points out that recent container shipping rates reported by some listed companies have been quite poor. As an aside, we remind readers that in addition to slumping demand, container trade faces a lot of new supply, in terms of new container ships, coming online, which is a substantial threat for end-2009 profitability. TT believes shipyard delays may mitigate the supply growth problem to some degree, but it is unlikely to be enough for 2009. Thus they believe current data implies a rough 2H09, a moderating but still challenging 2010, and then perhaps potential for some decent profitability in 2011 should further shipyard cancellations and a global economic rebound coincide nicely.

After a relatively quiet week for dry bulk shipping rates (for things like iron ore, coking & thermal coal, and grains), I thought it was useful to report Mr. Charles de Trenck's recent words on Baltic Dry Index (BDI) speculation. The BDI has held up lately, but has been helped by continuing port congestion and Chinese port inventory build. To me, it seems the BDI above 4000 likely requires these factors to continue and as they are likely unsustainable, as Transport Trackers reiterated, "chasing the BDI above 4000 makes no sense". In the short term, the BDI can go anywhere, but odds are stacked against you in the current environment. For example, see my recent piece in regards to declining steel and seaborne iron ore trade this year, which is a major headwind the BDI faces in 2H09 especially after the spectacular growth of the bulk shipping fleet in the recent shipping boom.

BDI speculation: We exited the BDI rebound above 4000 in early June, and all we have seen in recent weeks are speculative and volatile commodities’ moves. In other words…froth. And this even though there were too many Capes sucked into China congestion (ie, the ramp up in China congestion in recent months). We continue to think select cargo cover charters can offer opportunities, while chasing BDI above 4000 makes no sense

Now this is cool. Hellenic Shipping has a Google Maps mashup showing interactive, live data on the global shipping fleet. The data below is... 1 minutes and 53 seconds old. Love the internet.