China-US trade truce is no trans-Pacific savior

That the U.S.-China trade war has inflicted grievous damage on the trans-Pacific shipping trades these past two years is not in doubt. In November alone, China’s exports to the U.S. were down 23% year-over-year in November as tariffs “sucked the life” out of this key shipping artery.

Indeed, the growth rate for Chinese exports to the U.S. last month was the lowest single-month reading since January 1996 after adjusting for Lunar New Year holiday period distortions.

This has weighed heavily on liner spot freight rates through most of 2019, with China-U.S. West Coast prices currently 20% lower than a year ago, according to Freightos (see SONAR below).

Source: SONAR

FreightWaves predicted earlier this year that volumes shipped from Asia to North America would decline for the first time in a decade. And, according to Alphaliner, the Dec. 13 phase one truce between the two nations is unlikely to provide a near-term uplift next year.

“The new agreement, with details still sketchy at the moment, will do little to boost eastbound trans-Pacific container volumes in the short run,” concluded the container shipping analyst.

The Dec. 13 deal saw the suspension of planned 15% U.S. tariffs on $160 billion of imports from China that were set to take effect on Dec. 15. The U.S. also pledged that existing 15% tariffs on $112 billion of goods that took effect on Sept. 1 would be reduced to 7.5%.

For its part, China canceled retaliatory tariffs on U.S. imports, and the country is expected to increase purchases of U.S. products and services by some $200 billion over the next two years.

However, as Alphaliner notes, the 25% tariff imposed by the U.S. on some $250 billion of Chinese imports remains unchanged.

As a result, the eastbound trans-Pacific trade is still expected to record its first annual decline since 2009, with full-year U.S. container imports from the Far East expected to shrink by 2.4% to 15.7 million twenty-foot equivalent units (TEUs) this year, compared to 16.1 million TEUs in 2018, according to Alphaliner.

Rolf Habben Jansen, chief executive officer of container shipping giant Hapag-Lloyd, told FreightWaves that as a result of the U.S.-China trade war, volumes from China to the U.S. had “definitely come down” this year. However, the carrier has seen “markets like Vietnam, Indonesia and especially India to the U.S. develop very well.”

Picking up this point using numbers from PIERS, Alphaliner estimates that U.S. containerized imports from China decreased by 8.2% in the first 11 months of the year and China’s share of total imports from the Far East shrunk from 69% last year to 64%.

By contrast, U.S. imports from other Far East origins increased by 15.4%, with gains across all countries except Hong Kong.

“This was, however, insufficient to forestall an overall decline in trans-Pacific volumes,” said Alphaliner. “The shift in sourcing from China to Southeast Asia is apparent: Vietnam, Malaysia, Thailand and Indonesia all recorded strong double-digit growth.”

The new U.S.-China trade deal, concluded Alphaliner, will not be sufficient to reverse the shift.

“China is not expected to regain its former share of trans-Pacific volumes in the near term, while considerable uncertainty remains on prospects for overall growth of trans-Pacific volumes in 2020,” it added.

Source: SONAR

More FreightWaves and American Shipper articles by Mike