The container shipping industry in the first quarter of 2019 faced challenges as the trade war between the United States and China began hindering transpacific capacity and European economic growth continued to stagnate.
Trade between the most prominent economic zones in the world can be measured on a quarterly basis using the Bluewater Reporting World Liner Supply (WLS) Report.
Bluewater Reporting’s data-heavy WLS report tracks the estimated weekly allocated TEU capacity of competitive direct liner services on 30 individual lanes operating between the most prominent economic continents of Asia, Europe, North America and South America.
The report estimates the weekly allocated capacity within each specific trade lane and takes skipped sailings and slow steaming into account. It is designed to help ocean carriers, non-vessel-operating common carriers, freight forwarders, shippers, ports and analysts monitor trends in ocean liner shipping capacity.
On the Asia-to-East Coast North America trade, weekly allocated TEUs fell 5.61 percent between Q4 2018 and Q1 2019, from 147,509 TEUs to 139,229 TEUs, while weekly allocated TEUs on the Asia-to-West Coast North America trade declined 6.81 percent between Q4 2018 and Q1 2019, from 305,474 TEUs to 284,674 TEUs, as illustrated in the chart below.
The Asia-to-North America trade is heavily influenced by the two largest economies in the world, the U.S. and China. The Q4 2018 WLS Report assumed there would be a reduction in capacity if tariffs enacted by the U.S. and Chinese governments started to reduce demand for consumption.
This reduction in demand is clearly shown in Q1 2019 as tariffs have made foreign goods more expensive. Furthermore, this reduction in demand has caused a decrease in capacity and shows that the tariffs are beginning to have their intended consequences.
The significant reduction in capacity suggests that unless the U.S. and China come to a trade agreement, both economies will suffer, and externalities will be produced worldwide.
However, an agreement currently is being debated. Myron Brilliant, head of international affairs at the U.S. Chamber of Commerce, explained during a Tuesday press briefing that U.S.-China trade talks have progressed to a point where the two countries will most likely reach a deal, with about 90 percent of talks completed, yet the final 10 percent is the hardest part to get through.
While trade from Asia and North America plummeted between Q4 2018 and Q1 2019, the prominent outbound North Europe trades saw modest growth over this time frame. As mentioned in the previous WLS analysis, the European Union is facing adversity with the economies of Germany, Britain and France all experiencing sub-optimal growth.
Estimated weekly allocated TEUs from North Europe to Asia grew 1.15 percent between Q4 2018 and Q1 2019, from 224,885 TEUs to 227,470 TEUs, while estimated weekly allocated TEUs from North Europe to North America grew 0.83 percent, from 77,097 TEUs to 77,738 TEUs, as illustrated in the chart below.
The relative stability for European exports to North America and Asia suggests that manufacturing has stopped retracting and could be benefiting from the trade war between the United States and China. The growth in exports to Asia and North America could be replacing capacity that would typically be exported from China and the U.S.
If this hypothesis is correct and the trade war continues during Q2 2019, growth in exports from Europe to Asia and North America should continue to increase. Inversely, if the trade war comes to an end, exports from Europe to Asia and North America should decline as the U.S. and China retake their market share.
The results for Q1 2019 illustrate that while the trade war began as political posturing, it is starting to have negative impacts on the largest economies in the world. If the trade war continues, the U.S. and China will face domestic consequences and will risk inducing a global recession.
The Q1 2019 WLS report is downloadable in an Excel spreadsheet form here. You must be a BlueWater Reporting individual subscriber or a BlueWater Reporting corporate subscriber to download the WLS report. Additionally, the report may be purchased directly for $500.