Q1 2023
Macro
Container Volume Decline and Economic Implications for Exporting and Importing Countries
The significant drop in container volumes into major consuming regions is much greater than the decline in consumer demand during the first months of this year. For example, inbound container volumes into North America fell by 19.4%, while US retail sales increased by 5.1% in the first two months of 2023. Although these retail sales have actually decreased by around 1% when adjusted for inflation, it is still insufficient to compensate for the difference. Contributing to this decline are inventory levels, with shippers choosing to reduce these before importing new goods. The business inventories to sales ratio was 1.34 in January, slightly lower than December's ratio of 1.36, which was the highest ratio since October 2020.
On the other hand, exporting countries, especially China, are benefiting from the falling imports. Since the second half of 2020, exports have been crucial to China's economic recovery, compensating for the slower recovery in domestic demand. However, with the end of China's zero-COVID measures and decreasing demand for exports, the focus will shift to the domestic economy, particularly consumer spending. Retail sales increased by 3.5% in the first two months of the year, following a slight decline of -0.2% in 2022. Despite reopening, consumer uncertainty regarding the Chinese property sector may persist, even though there are signs of improvement from last year. New construction starts declined by 9.4% in the first two months of this year compared to 2022, but this was a significant improvement from the 44% YoY decrease in December.
To achieve the 5.2% growth that the IMF has predicted for China this year, reopening the domestic economy is crucial. This is not only because of the reduced demand for exports worldwide but also because manufacturers are increasingly seeking to diversify their supply chains and not rely solely on China. This would benefit other countries in Far East and South East Asia, which provide similar benefits as China while reducing dependence on China amid heightened geopolitical tensions.
New investments are being drawn to various regions, including South and Central America, Eastern Europe, North Africa, as well as Far and South East Asia. To illustrate, Mexico witnessed a 12% YoY increase in foreign direct investments in 2022, while Brazil experienced a nearly 60% surge, reaching a total of USD 82.3 billion.
Regardless of future manufacturing plans, the global economic situation suggests a challenging year for container shipping. Although inflation may have peaked, consumers remain cautious and are not as eager to spend as they have been in the past few years.
