|
By William DiBenedetto, CBN Feature Editor
China’s well-documented economic slowdown and currency exchange rate steps could indicate the country is slipping into a recession that could tip the world’s economy into a recession — and that would mean tough times ahead for ocean shipping.
One problem that is almost always in play when talking about China and its numbers is that economists and trade analysts don’t really know how accurate the economic data is. Is it just the normal financial ups, downs and corrections — or an indication of changes in global trade?
Steve Banker, a supply chain management expert who writes for Logistics Viewpoints, advises that companies might be "well advised to start doing contingency planning assuming that China is in recession." In a recent article he quoted Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, who said that a continuation of China’s slowdown in the next years will likely drag global economic growth below two percent, a threshold he defines as a world recession.
World trade volume declined by 0.5 percent in the second quarter this year, according to the World Trade Monitor (Netherlands Bureau for Economic Policy Analysis), and that followed a first quarter decline of 1.5 percent. While those are fairly negligible declines, they could be important indicators because until recently, global trade has been growing at twice the rate of the global economy. Thus a slowdown in trade raises concerns about the causes and effects going forward for various regions, commodities, finished goods, and trade routes.
China’s slowdown poses some significant risks for container shipping, according to Drewry Maritime Research. "Greater China (including Hong Kong) represents approximately 30 percent 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)," Drewry said.
With such a large share of the pie, the consultancy continued, "The direction of the Chinese economy has a huge bearing on world port throughput growth. The IMF was not moved to change its forecast for China in its latest World Economic Outlook, keeping GDP growth pegged at 6.8 percent for this year and 6.3 percent 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."
Drewry’s analysis of the numbers coming from the WTO, the China Federation of Logistics & Purchasing and China’s National Bureau of Statistics has led Drewry to cut its 2015 growth forecast for Greater China port throughput from 5.8 percent to 4.9 percent, which represents a shortfall of approximately 1.85 million TEUs, or roughly 1 percent of world traffic in 2014.
China’s imports fell 14.3 percent year-on-year in August, and they fell 8.6 percent in July, London's Financial Times reported. Meanwhile, August exports dropped 6.1 percent after an 8.9 percent decline in July.
Drewry’s bottom line: "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."
It seems clear then that China’s domestic economy has weakened. Another indication that things are not going well in China — or in the global economy — is the plunge in box rates that carriers charge to ship containers from China to its trading partners. Those prices have "totally collapsed," said Sydney's Business Insider last month. Container rates from China to the rest of the world have been in a steep decline, with some fluctuations, since February.
Recession or no, companies that manufacture in China will have to carefully monitor demand, production and inventory, perhaps on a more frequent basis than usual, to make sure they stay on top of the situation there. They will also need to carefully monitor the financial health of their suppliers, and the resiliency of their supply chain components, including of course transportation and logistics. Companies with flexible, responsive supply chains will weather a global recession, or whatever disruptions that may come out of China, better.
|
