Trans-Pacific box volumes contract first time in decade

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 National Retail Federation noted that container import volumes to the U.S. are also likely to drop for the first time in 10 years.

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.

Import TEUs into California’s three largest ports. (SONAR: IMPTEU.USLAX, USLGB, USOAK)

“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.”