China in free fall: export growth declines from 18% in July to 7.1% in August
This contributes to the decrease of the rates of the marine transport that is softened by a set of factors.
Fares in the Trans-Pacific continued their decline last week, with the Asia – West Coast U.S. (USWC) route Decreasing by 20% to start the month at US$4,345/FEU, 70% lower than at the beginning of the year and last seen in January 2021, according to data from the Freightos Baltic Index (FBX). This decrease reflects the fall in freight demand, both due to excess inventories among some importers, as inflation reduces spending among some consumers, while others target their cats towards different goods and services as the pandemic recedes, and because many retailers withdrew high season orders earlier in the year to avoid delays.
While spot rates have been setting a downward trend for some time. Looking deeper and understanding what the above figures represent in reality, it can be seen that shipping agents in Asia are struggling to find enough cargo.
At this time of year, China’s exports tend to increase before the end-of-year holiday in the West forming the «high season». Paradoxically, what we are experiencing is a time very similar to a «low season», given that the general demand for customer shipments is plummeting.
Fall in exports
Indeed, weakened export demand is reflected not only in the fall in tariffs on the Asia – USWC route, but also in China’s slowing export growth, which fell to 7.1% in August, year after year, from 18% in July, while exports to the U.S. experienced a year-on-year decline for the first time since May 2020.
Looking in detail at China’s exports to its main trading partners, it is expected that these were reduced in August by 3.8% year-on-year after growing 11% in July.
Clearly, China’s current situation is not unique to the route to the USWC. In fact, tariffs in Asia – Northern Europe, according to the FBX also fell sharply last week to $7,845/FEU, 25% lower than the level maintained from May to early August. As volumes in this lane continue to fall, shipping lines have begun to apply blank sailings in an attempt to fill the container ships. The table is complete when observing that the year-on-year growth of exports from China to the European Union decelerated to 11.1%, compared to 23.2% in July.
The sub-index of new orders within the official manufacturing PMI has been below 50 since May 2021, which means that the contraction of new orders has spread for 16 months so far.
Last year, net exports of goods and services accounted for 21 per cent of China’s gross domestic product (GDP), and the percentage rose to nearly 36 per cent in the first half of this year. However, global growth prospects have been deteriorating while external demand for Chinese products is held back by high world inflation, with rising energy prices as a result of the Ukrainian war.
A positive aspect
The decline in shipments from China, however, contributes to easing delays and congestion at the ports of Los Angeles and Long Beach, increasing available capacity and reducing tariffs on this route. However, it should be remembered that much of that congestion has moved to the east coast and Gulf ports and is probably a factor that prevents tariffs from falling as dramatically in Asia – USEC as tariffs to the USWC for the moment.
The export slowdown is aimed at further slowing down a Chinese economy that has already been hit by sporadic outbreaks of Covid-19 and massive health shutdowns, falling housing and weakened consumer spending.
Basically, there is no doubt that China’s exports will continue to slow, and it is unlikely to recover in the short term, said Hong Hao, chief economist of the Chinese hedge fund Grow Investment. «The turning point has already arrived,» he said.
China’s economy will be mostly «unchanged» in the short term, while the nation’s GDP growth will not exceed 3% for the year, he added. The momentum of shipments accumulated after the end of the Shanghai blockade is also fading, weakening China’s export momentum while weakening tariffs.
However, it should be remembered that, despite these decreases, container shipping rates are still well above the norm: In the Trans-Pacific are about three times its level in September 2019 and Asia’s north Europe are five times higher. Then, even with the fall in demand, other factors such as congestion, projected transpacific volumes still strong (relative to 2019) and unresolved labor disputes in the US, anticipate a gradual decrease in tariffs.