Container research firm Alphaliner said trade on the trans-Pacific dropped in 2019 for the first time in a decade, the victim of the ongoing U.S.-China trade war and shippers deciding not to move boxes ahead of implementation of the new marine fuel standards in 2020.
The Paris-based researcher also offered a muted outlook on the container trade as major ocean carriers do not plan to expand services this year on one of the world’s busiest trade lanes.
Alphaliner said in a recent report that total container volumes on the eastbound trans-Pacific fell 2.5% last year, the first such decline since the end of the Great Recession in 2009, when container volumes sank 15.3% from the year earlier.
The slowdown in container volumes will be a big theme for transportation and logistics companies as they report fourth-quarter earnings. Expeditors International (Nasdaq: EXPD), the largest forwarder in the trans-Pacific, warned last week that fourth-quarter operating income will range between $177 million and $183 million, down from $217 million in operating income reported in the fourth quarter of 2018.
Jeffrey S. Musser, president and CEO of Expeditors, said in a statement the results “include slowing of various global economies, trade disputes, and a customer base that is taking advantage of a market that appears to be changing from a supply and demand standpoint.”
Data from the six major North American west coast ports show import container volumes of 13.2 million twenty-foot equivalent units (TEUs) in 2019, compared to 13.7 million in 2018.
Of course, the ports have a high hurdle due to front-loading ahead of tariffs in 2018. That year saw the second highest growth in a decade with trans-Pacific volume growth of 8.3%, Alphaliner noted.
As for 2019’s front-loading, it was largely non-existent. Alphaliner noted the fourth quarter of 2019 saw a steep 10% drop in container volumes, compared to slight growth in volumes in the first three quarters of the year.
“There was no repeat of the cargo front-loading that took place in the last quarter of 2018 to avoid the punitive import tariffs that were to be imposed on Chinese imports to the U.S.,” Alphaliner said.
Expeditors’ Musser held a similar view that the pace at which these changes occurred accelerated dramatically in the fourth quarter.
Likewise, shippers bided their time with respect to the International Maritime Organization’s rule that ocean carriers use more expensive low-sulfur fuel in 2020 as there “was also no evidence of any significant front-loading to avoid the [low-sulfur] surcharge which was implemented from late December last year.”
China, which accounts for three-quarters of the volume coming on the trans-Pacific eastbound lane, saw its TEU volume to the U.S. drop 10% last year, thanks to President Donald Trump’s push to extract more concessions from the U.S.’s largest overseas trading partner.
Despite the implementation of the Phase One trade deal, “the new deal is not expected to reverse the decline of Chinese exports to the U.S. in the near term,” it added.
Maersk Chief Executive Officer Soren Skou said in an interview with CNBC the Phase One trade does reduce uncertainty in the trans-Pacific trade. But it is unclear whether it will result in a return of container volumes lost over the last year.
The result is that ocean carriers are not likely to introduce much, if any, new capacity in the trans-Pacific.
THE Alliance has revamped its network to incorporate ships from Hyundai Merchant Marine and offer additional service from faster-growing exporters in Southeast Asia. But Alphaliner said the service changes mean “capacity will increase marginally despite the reduction in total number of services.”
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John D. McCown
The negative catalyst is the China tariffs and the effect of this is best seen in just the inbound volume of the USWC ports (Los Angeles, Long Beach, Oakland and Seattle/Tacoma). At those ports, total loaded inbound TEU volume was actually down 5.0% in 2019 compared to 2018. Even more concerning is the year over year decline in 4Q19 and December was 14.3% and 17.2% respectively. In other words, the actual trend is not our friend. Excluding the financial crisis, these are actually some of the worst volume declines over a broad port range since the beginning of the container revolution.
Part of the significant December decline can probably be ascribed a high year ago comparable which was likely bolstered by front loading to get ahead of announced tariff increases. In my view, however, it would be a mistake to credit too much of that decline to inventory adjustments. The year ago December 2018 USWC increase of 15.1% was not completely out of pattern of increases in the preceding two Decembers (7.5% increase in Dec 2017 and 8.5% in Dec 2016).
Any inventory changes are just a matter of timing. Several different ways of estimating the effect of the current China tariffs on total inbound container volume into the US circle in at a 10% overall decline. We’ve only really had one quarter of that so far which points to another three quarters of bad comparables until things start to even out. My full analysis of inbound containers to Top 10 US ports is available on my LinkedIn site at https://lnkd.in/e8G3ewQ