U.S. imports an unattractive market

   Could it be that the United States is pretty much the most unattractive import market for container lines?
   According to a chart compiled by the maritime consulting unit of the Seabury Group, the United States’ import market sits in the unenviable position of having among the lowest growth characteristics coupled with a fairly high volatility rating from 2005-2010.
  The chart, shown during a Seabury-American Shipper webinar in late September on the state of the ocean freight industry, seems to indicate that the U.S. market offers little return for its pretty high risk. So why, then, is the eastbound transpacific still the largest single direction container trade lane in the world?
  Well, the chart doesn’t capture the volume of goods moving, just how countries compare to the global average in trade growth and volatility.
  For instance, Vietnam’s import market seems the best container market in which to invest. Its volatility is right on the global average, while its growth rate tops all other nations surveyed. Its export growth rate is lower, but still robust and well above the global average. But Vietnam’s total trade is still a fraction of the U.S. import trade.
  The import market in China, for comparison, sits in a comfortable pocket of above average growth and below average volatility. But China’s exports, while still maintaining sturdy growth, have roughly the same volatility as U.S. imports. No surprise there — China’s exports are still inextricably linked to U.S. imports.
  The high growth rate for Vietnamese imports is likely due to a lower base. In China’s case, it’s a mixture of high demand for raw materials to fuel the export sector and rising domestic demand for imported finished goods.
  China’s export volume is so huge that it’s getting nearly impossible to sustain double-digit growth year after year. But the lack of volatility in its import sector marks as a key driver for future container trade growth.
  It seems odd to think in these terms — that the Chinese import market is the less risky bet than those in the United States and Europe — after going through a decade of virtually unbridled trade growth in goods moving from Asia to the West.
  But that’s the current reality — or the new norm, as they say. According to Seabury, India’s import market is even more attractive. It has a higher growth average than China — albeit with higher volatility, but the volatility is well below the global average.
  In fact, aside from China, India and Vietnam, the only other import markets to have above average growth and below average volatility are Malaysia and the Philippines — two key cogs in the semi-manufacturing universe of intra-Asia trade.
  In Europe nearly every country surveyed by Seabury had above average volatility for imports and below average volatility for exports. Hardly any markets had above average growth in either category.
  Other markets seem confined by either moribund growth or undesirable volatility. Cambodia’s export market, for instance, has the highest growth but also the most volatility. On the other side, South African exports have very tolerable levels of volatility but among the lowest growth rates.
  There is one other market that has had solid growth and below average volatility — the U.S. export market. But its relative stability and growth belies the low-margin and low-volume nature of most U.S. export products.
  Those low margins and volumes mean, despite its apparent attractiveness, the U.S. export market still takes a backseat to the higher-risk, lower-growth import market. Another chart from Seabury measures the volatility and growth of certain commodities, and it’s here where the picture becomes clearer still.
  Items like wastepaper and packaging materials have average growth and low volatility — almost precisely the characteristics of the U.S. export market. Consumer goods sit in the undesirable quadrant where growth is low and volatility high — just like the U.S. import market.
  In other words, there are no secrets here, just common sense. An import focus on low-growth, highly volatile containerized goods will make the United States less and less desirable to serve. And an export market focused on low-margin goods, even if very stable, won’t be much more desirable.

Communication not perishable
  Also during the webinar, Mathijs Slangen, a senior analyst in Seabury’s maritime practice, made a very interesting point about lines of communication.
  When asked how shippers could plan for peak season given the topsy-turvy last few years, Slangen pointed to the reefer trade. A veteran of Maersk Line’s reefer division, Slangen said reefer shippers and carriers don’t let months pass without discussing capacity needs.
  “Shipping lines and shippers have to communicate often,” he said. “That’s what we see in the perishable business.”
  The subtle inference was that dry box shippers and carriers ought to be taking a cue from their reefer brethren. There’s one big difference, though. In the reefer business shippers and carriers communicate often because they have to, not because they want to. In the dry box world, the motivation to consistently discuss volumes and needed capacity is not quite there.
  While demand for a hot new electronic device might be high, and a retailer might want to catch consumer demand for that product at its peak, the device will not literally spoil if it misses a sailing and sits in a terminal for a week.
  Ditto for an auto part. While a car manufacturer might have to slow its production lines due to a missed parts shipment, those delayed parts don’t go bad if they miss their window. They go into the next batch of cars on the assembly.
  But apples from New Zealand, or shrimp from Vietnam, do go bad, so reefer shippers and carriers have no other option but to align demand with capacity. Perishable cargo can’t roll.
  So why would toothpaste makers, for example, not have the same urge to communicate demand patterns with their carriers as apple growers do? Some surely do, but the evidence suggests that most don’t. Until the impetus to constantly communicate production levels to carriers (and expect sufficient capacity in return) is there, shippers of non-perishables are likely doomed to ride the demand roller coaster.
  To listen to the American Shipper/Seabury webinar, access on line at www.AmericanShipper.com/SeaburyWebinar.