Q4 2022
These days a lot of focus is rightly placed on developments in China and the recent easing of its zero-COVID policies after protests, including the existing damage to the economy.
The IMF expects the Chinese economy to grow at its slowest pace in around three decades this year.
In the first three quarters of the year, the Chinese economy grew by 3.0% from 2021 (Source: National Bureau of Statistics China). It's unlikely to be any better in Q4 2022.
The rolling back of the zero-COVID policy will stimulate economic activity and reduce uncertainty, although this is likely to be held back should the case numbers spiral.
Internally, domestic consumption is down year-on-year, taking a hit from lower consumer confidence.
In October, retail sales of consumer goods fell by 0.5% year-on-year, and retail sales have grown by just 0.6% year-to-date. In 2021 Chinese retail sales rose by 12.5%.
This development is having a big impact on intra-Asian business.
For international container and air freight shipping, the impact on Chinese manufacturing and export activity is important.
China’s PMI fell to 48.0 in November, where anything below 50 indicates a month-on-month contraction.
Though this is only the second month in a row of a contraction, the index has been below 50 in nine of the past 15 months and even when it has been above 50, growth has been very muted.
The last time the Chinese manufacturing index was 51 or higher was in May 2021.
The new export order index, a sub-index of the manufacturing PMI, paints an even more dire picture.
This sub-index has been declining month-on-month for the past 19 months, digging itself into an ever deeper hole.
The result of this slowdown in manufacturing and new export orders can be clearly seen in Chinese exports, despite the yen devaluation, which should stimulate export demand.
In October, the value of Chinese exports, measured in USD, fell by 0.3% from a year before, a fall which would be even higher were it not for the high inflation rates over the past year.
On the flip side, the question is whether this fall in exports from China is bigger than the fall in demand from major consuming nations as their economies struggle with the higher cost of living and slowing growth.
Consumer demand in major consuming regions, the main driver for containerized imports, has stalled when adjusting for inflation. In the EU, the retail trade volume in October was 2.2% lower than in October 2021, despite the value of retail turnover increasing by 6.3% over the same time.
In the US retail sales, total retail sales have grown by 8.9% when measured in value in the first ten months of the year, leaving them almost a mind-blowing third higher than in 2019.
But, the still strong growth in US retail sales is having a much smaller effect on containerized imports than the figure would suggest.
This is due to inflation, as fewer goods are needed to generate the same value of retail sales. Also, it can be connected to a shift in retail spending away from goods, typically imported containers, in favor of food and energy products.
In the first ten months of the year, sales at food, beverage and gasoline stores have risen by 18.3%, with sales of other retail goods only rising by 7.3%, in line with inflation.
The high inflation will also have longer-term effects.
The earnings cannot keep up with the increased cost of living, dampening demand and slowing the recovery.
All in all, the value of US imports is still increasing year-on-year.
But the pace of the increase has declined, and the value of imports from China has outright fallen compared to October 2021.
This contrasts with the higher growth of imports from the EU, Japan, South Korea and Taiwan in October.
This shows that the fall in Chinese exports cannot be attributed to lower demand but to disruptions within China.
Looking only at imported containers, the growth rate for total imports is much lower, no longer buoyed by the effects of inflation).
But here, too, China sticks out by delivering a year-on-year fall in volumes. Imports worldwide are up by 2.2% in October from last year, whereas imports from China are down by 13.4%.
The recent easing of restrictions in China suggests exports in December and the New Year will pick up, though likely only after a further fall in November. The early Chinese New Year, on 22 January, will likely also see more travel than in the past two years.
This will impact production as workers return home, often for extended breaks.
Shippers are already looking ahead to ensure a supply of goods through this Chinese holiday, with carriers pinning their hopes on boosting spot rates.
