Economist: 4th quarter box spike wonÆt last
U.S. containerized trade should begin to recover in the fourth quarter but will subsequently fall back and grow at a slower level for the foreseeable future, economist Bill Ralph said last week.
Speaking at the Virginia Maritime Association's annual conference in Norfolk, Ralph said there are signs the economy has bottomed out and that pent up consumer demand will spur a large increase in purchases of imported goods as the holiday season kicks in. Last year, Americans spent less during the holiday shopping period as the recession took hold. Falling inventory levels in the first quarter is another sign that retailers are looking to replenish stocks.
That could mean 5 percent to 8 percent growth for container imports in the fourth quarter after a dismal 12-month stretch, Ralph told AmericanShipper.com afterwards. Last year, the transpacific market tumbled 6.5 percent and shipping analyst Drewry estimates that inbound traffic on the trade lane could be down 10 percent this year from 2008. East Coast ports have experienced a 20 percent drop in TEU volume in the last two quarters.
But the rebound could be short-lived.
Ralph, president of New York-based R.K. Johns & Associates, said container traffic will increase at a more moderate 3 percent to 4 percent rate in 2010. The import industry should get used to global container volume growth in the range of 4 percent per year compared to double that level or more during most of this decade because Americans feel less wealthy and have begun saving beyond historical norms. In the last three months, the U.S. household saving rate reached 5 percent compared to negative savings rates in the past.
Since the late 1980s, annual container volumes have doubled every 10 years based on 7 percent annual TEU growth. During the past two recessions container traffic never declined. Under a slower growth scenario, container trade is expected to take as long as 18 years to double, according to Ralph.
'The boom is over for seeing 7 percent to 8 percent growth per year. We're going to have a few go-go quarters but not a lot of go-go years,' he said.
Frank Baragona, president of CMA CGM (America), said the French cargo liner also believes the global economy has started to turn the corner. Fill factors for manufacturers and retailers are starting to increase, and some of the carrier's customers are talking about a slight improvement in their business, he said in a keynote address before more than 250 importers and freight transportation professionals.
The comments of Baragona and Ralph are in line with those of Federal Reserve Chairman Ben Bernanke, who earlier this month said he expects the U.S. economy to begin recovering from the recession later this year. The slump is the worst for the container shipping industry in its 50-year history.
The recession has hammered ocean carriers because many engaged in a massive shipbuilding campaign to meet perceived trade demand just as the downturn took hold. Carriers have begun taking vessels out of service and canceling orders for new capacity to cut costs, right-size their networks and try to keep rates from falling any lower.
According to AXS Alphaliner, there are 506 ships idle off the coast of Singapore, representing some 1.4 million TEUs, or 11 percent of global capacity.
Some forecasters say the industry's idle capacity could reach 20 percent to 25 percent by 2011.
Baragona said additional capacity reductions would be required to bring the demand and supply into balance. Many carriers have cut rates as much as 40 percent or more to try and hold onto customers during the period of overcapacity.
The Norfolk-based shipping executive said he was encouraged at several attempts by carriers in the past couple of weeks to restore rates, saying it is 'the first indication that the industry is now starting to focus on profitability.' He called use of spot market rates for contract customers 'irresponsible pricing,' and said carriers engaging in price cutting have experienced negligible gains in market share.
Baragona said the silver lining of the current downturn is that the transpacific market is finally seeing a greater balance between imports and exports. In 2006 there were 2.6 import containers for every export box, meaning carriers incurred a lot of costs to reposition empty equipment. Now the ratio is about 1.9 to 1, according to Drewry.
'I think we can reasonably expect that due to the soft inbound demand that there will be a shortage of equipment' for exports in the future, Baragona said. ' Eric Kulisch