Asian export growth showing signs of slowing

5/23/2017

Poor trade indicators in Asian manufacturing countries suggest export growth from the region could taper off in the coming months, adding to downside pressure on ocean freight rates.

Frederic Neumann, HSBC economist, said that while exports this year had been better than expected, there were now signs that exports are decelerating as shipments are “rolling over” to a later shipment date – because the cargo isn’t needed immediately as stocks are adequate.  

“New export orders, a useful leading indicator, are also softening,” he added. “Partly, that’s because a big inventory re-build is fading; partly, it’s because Chinese demand is cooling; and partly, it’s because, perky sentiment indicators notwithstanding, activity in the West hasn’t lifted meaningfully yet.”

Containerised ocean spot freight rates from Asia to Europe and North America have been slowly edging down in recent weeks. Drewry reported the World Container Index (WCI) on Shanghai to Rotterdam declined by 3% or $58 to $1,811 for a 40ft box last week. GRIs on the Transpacific trade also lost ground prompting the WCI on the Shanghai-Los Angeles and Shanghai-New York lanes to fall by 9% and 3%, respectively.

Neumann also argued that the trade slowdown was structural, and the first-quarter (Q1) uplift that saw world container traffic grow 10% year-on-year in Q1 was an anomaly.

“For nearly two decades, global trade has grown at about twice the speed of GDP,” he said. “Now, exports are expanding at roughly the same pace as economic growth, and last year even more slowly. That suggests Asia’s recent trade rebound is more an aberration than a return to the days of vibrant exports.”

While an exports collapse would be prevented in the coming months by the new iPhone launch and an upswing in semiconductor demand, he noted that export volumes were now drawing on a narrow range of goods and the string of upside activity surprises in recent months was coming to an end. “Cooling exports should dampen growth more broadly,” he added.

“There are some early signs that export growth has started to roll over. Singapore saw exports contract on an annual basis in April and Korea’s numbers for the month only held up better than expected due to a surge in the delivery of vessels, which isn’t sustainable.

“More broadly, PMI new export orders eased last month, pointing to a pending deceleration of shipments,” Neumann added.

“The trouble is that this isn’t a temporary blip amid a broader Asian export renaissance. There are signs that the trade engine is structurally impaired and no longer able to generate the torque that Asia enjoyed in the 1990s and 2000s.

“For example, supply chain integration for most industries now looks complete, with some even dis-integrating. Also, ageing populations in the West demand more healthcare – a sector to which Asian economies are not closely tied – and less toys and furniture.

“This suggests that a sustained acceleration of exports from Asia is unlikely, with growth easing again in the coming months.”

However, industry observers noted that other factors have been involved in the 10% growth in world container volumes in the first quarter of this year, including strong growth in shipments to China and intra-regional growth, particularly within Asia. Indeed, in its report on the provisional trade lane data from Container Trades Statistics (CTS), Drewry highlighted that the CTS numbers point to intra-regional trade as the primary driver of growth, with volumes up by 17% versus 7% for deep-sea traffic.

And in Drewry’s Container Insight Weekly report today, the container shipping analyst said the provisional 1Q17 trade lane data from CTS indicates that container trade within Asia (encompassing Greater China, North Asia and Southeast Asia) jumped by a “prodigious” 23.5%, year on year, to reach 10.8 million teu. 

It said interrogation of the 1Q17 data reveals that the busiest and fastest growing lane within Intra-Asia is Greater China to/from Southeast Asia, “which grew by a staggering 36% to 3.4 million teu”.

Drewry said conditions look set for the two-way trade between Greater China and Southeast Asia to continue to take a bigger slice of the container pie, even if the rapid growth rates settle down. The IMF’s World Economic Outlook report, updated in April, predicts that the economies of China, Vietnam, Malaysia and Indonesia will all consistently see GDP growth in the region of 6% per annum over the next five years, Drewry noted. “In contrast, the outlook in the more mature North Asia region is far more muted, with South Korea expected to hover at 3% growth now until 2022, while Japan is forecast to bumble along at below 1% pa, Drewry observed