Drewry: China Slowdown Hurting Container Volumes

The risks from a slowdown in Chinese consumption to container shipping are far smaller than for the dry bulk sector, but they are not inconsiderable and will contribute to slowing world box growth, according to Drewry.

Greater China (including Hong Kong) represents approximately 30% of all container moves in the world, having nearly doubled its share since the start of the century when its expansion was given a major boost following entry into the World Trade Organization (WTO), says Drewry.

Clearly, with such a large piece of the pie, the direction of the Chinese economy has a huge bearing on world port throughput growth, Drewry says. The IMF was not moved to change its forecast for China in its latest World Economic Outlook, keeping GDP growth pegged at 6.8% for this year and 6.3% in 2016. These are still numbers that most other economies can only dream of, but the slowing trend has prompted Drewry to downgrade its outlook for Greater China, and subsequently, world container traffic.

Limited visibility into the breakdown of Chinese port statistics makes it very difficult to assess the relative strength of container imports and exports, but using the WTO’s merchandise trade data (based on value in US dollars) as a proxy the share of imports is estimated to be in the mid-40% range.

Assuming that is a broadly accurate ratio we can then see that a slowdown in the growth of Chinese container imports lays behind the static overall growth picture. Drewry estimates that China container imports only grew by 1.6% last year, whereas exports rose by 9.1%. The net effect was that total volume growth was unchanged at 5.6%.

The latest WTO data suggests that China’s merchandise imports were down by 15.5% in the first six months of 2015, whereas merchandise exports managed a 1% rise.

Forward looking data is not encouraging either, Drewry says. The official Purchasing Managers Index prepared by the China Federation of Logistics & Purchasing (CFLP) and China’s National Bureau of Statistics (NBS) has barely been keeping above the 50-point line that indicates manufacturing growth, with many of the sub-indices contracting. The Caixin/Markit PMI, which tends to survey small-to-medium size enterprises in China, came in at 48.2 in July, down from 49.4 in June. It was the fastest decline in past 15 months and the lowest reading since April 2014.

Against this slowing inbound backdrop, Drewry has cut its 2015 growth forecast for Greater China port throughput from 5.8% to 4.9%, which represents a shortfall of approximately 1.85 million TEU, or roughly 1% of world traffic in 2014.