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Potential upside for shipping from trade war explored

Drewry says while the U.S.-China trade war is bad news for the transpacific container trade, it could result in more transport of intermediate goods.

   Drewry says while the trade war between the United States and China is bad news for finished goods being transported in containerships, there could be a silver lining if transport of intermediate goods increases.
   In the latest edition of its Container Insight Weekly, Drewry said, “The fragmentation of production that really took off this century thanks to advances in technology and China’s ascension has been a massive boost to container shipping. The movement of intermediate items necessary to make the final product account for over half of world trade in goods, according to the OECD. More fragmentation means more need for transportation services and vice versa.
   “Assuming this week’s G20 summit in Osaka, Japan, doesn’t suddenly reverse the situation and the U.S. goes ahead with plans to subject all Chinese imports to extra duties, the new protectionist world could bring some benefits to container shipping lines,” the London-based consultant argued in an excerpt from its forthcoming Container Forecaster report.
   China “has developed its manufacturing capacity to such an extent that it barely needs inputs from the rest of the world to support its exports,” Drewry said. “As final goods sourcing moves to countries currently without the same manufacturing ecosystem as China, they will require more intermediate inputs, meaning more production fragmentation.
   “Where those links establish themselves will determine how beneficial the process is for shipping lines. More intra-Asia trade will boost demand for shipping services and put a greater onus on smaller feeder ships, whereas greater regional trade in North America and Europe would be less advantageous due to overland opportunities,” Drewry said.
   It added that countries that provide raw materials and semi-finished goods to China that go into the re-export of the final products to the U.S. could be losers, including exporters from the United States.
   Drewry said, however, that “for the foreseeable future China will remain the world’s container export hub, albeit a slightly smaller one.”

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Chris Dupin

Chris Dupin has written about trade and transportation and other business subjects for a variety of publications before joining American Shipper and Freightwaves.