Trump’s tariffs trigger troubles on the transpacific

The sudden and severe escalation in the US-China trade conflict has placed container shipping under a cloud, says MSI.

Transpacific container shipping volumes could see a sustained period of weak growth, volatility and uncertainty as the US-China trade war escalates.

After headhaul rates from on the Shanghai Containerised Freight Index fell for a second consecutive week – dropping 7.1% week-on-week on 17 May to $1,340 per feu on the Asia-US west coast, and down 4.2% to $2,597 per feu on Asia-US east coast – Maritime Strategies International (MSI) predicted a prolonged downturn on the key box trade.

“The sudden and severe escalation in the US-China trade conflict has placed the containership industry under a cloud,” said the analyst’s latest monthly report. “Goods that constitute around half of US containerised imports from China now face 25% tariffs, with the near-remainder of US imports also facing the prospect of 25% tariffs.”

MSI said that while frontloading to avoid potential new tariffs and some success in relocating production would offset some of the negative impacts of the US-China trade war, it predicted “the transpacific is heading for a period of pronounced negative growth” which would put spot freight markets under pressure.

“Other trade-lanes will be relatively unaffected unless the escalation creates wider economic contagion,” MSI added. “The time-charter market will be affected if liners adopt a more cautious approach to taking on new tonnage, and perhaps through redeployed tonnage if Transpacific loops are withdrawn. But in the near-term the impact should be manageable.”

On the Asia-Europe trade, MSI, citing CTS statistics, said westbound volumes had unexpectedly surged in March, with headhaul volumes up by 24% year-on-year which, in combination with upward revisions to the January and February data, resulted in aggregate first-quarter (Q1) year-on-year growth of 7%.

“This is much stronger than expected, or indeed suggested by economic activity in much of Europe, and revisions to the data are a real possibility,” added the analyst. “With that said, Q1 2018 was a weak quarter and freight markets have absorbed healthy capacity growth with reasonable success.

“While our initial estimate of aggregate load factors of 90% feels a little on the high-side, demand growth evidently outperformed expectations in Q1.”

MSI forecasts that on the Asia-Europe trade, some sailings will be blanked in the run-up to peak season, and load factors will likely hold above 85%. “Liner companies will effectively tread water, but we do not believe the reported pace of demand growth in Q1 will be maintained,” said the analyst.

“The economic backdrop in much of Europe remains challenging, even if recent data are somewhat improved. The situation in Turkey appears to be improving faster than expected, but a much-weakened lira will continue to act as a drag on volume growth.

“We expect demand growth of around 2.5%, year on year, in the coming quarters.”

Source: Loyd’s