Improving US economy to buoy demand for container shipping

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bedroomContainer shipping lines are expected to experience stronger demand as the US economy and American consumer spending chart an upward path, according to a new analysis by shipping association BIMCO.

The report pointed to rising consumer confidence and improving conditions in the housing segment as key indicators of better times ahead for the American economy that will also “result in stronger demand for container shipping.”

It cited the continued improvement of the Conference Board Consumer Confidence Index of the US in August, which went up for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers’ spirits. Overall, consumers remain quite positive about the short-term outlooks for the economy and labor market despite having doubts about whether their income will increase over the next six months.

“Economic news from the US shows that the world’s largest economy is getting better by the day, leaving the devastating first quarter GDP setback behind,” said Peter Sand, chief shipping analyst at BIMCO.

“For an economy mainly driven by consumer spending this is good news for shipping—in particular we expect this to positively affect demand for trans-pacific container shipping—but also to increase US East Coast container imports.”

Additionally, the US housing market is beginning to reflect the improving economic conditions in the country. US housing starts surged to an eight-month high in July, reversing two months of consecutive declines, noted BIMCO.

“As containerized goods are predominantly consumer products, the improvement in the housing market also contributes to boosting confidence and shipping demand.”

Sand added: “Furniture and appliances are among the top categories of imported containerized goods into the US from Far East Asia—which is why we follow the housing market closely.”

BIMCO’s US West Coast import data showed a 4 percent increase for loaded containers during the first seven months of 2014 over same period last year, while the US East Coast improved comparably by 8.8 percent during the first six months.

Asia-Europe box exports up but likely not sustainable

Meanwhile, containerized exports from Asia to North Europe registered in June a marginal fall of 1 percent from 872,000 twenty-foot equivalent units (TEUs) in May to 864,000 TEUs, but on a year-on-year comparison rose 8.9 percent, according to a new report by Drewry.

For the first six months of the year, 4.864 million TEUs have been shipped on the headhaul leg against 4.493 million TEUs in 2013—an increase of 8.3 percent. The pace of growth accelerated appreciably in the second quarter with volumes on an annual basis rising by 9.9 percent compared to 6.6 percent in the first three months.

Among the major economies in North Europe, Asian imports entering Germany during the second quarter rose by 12.1 percent, UK by 11.1 percent, Netherlands by 10.4 percent, France by 8.7 percent, and Belgium by 6.6 percent compared to the same period a year earlier.

But Drewry said the strong first-half headhaul growth performance is a product of a restocking program in Europe and has to be set against a weak first half of 2013.

“These figures fly in the face of the macro-economic picture. GDP in Germany actually shrank by 0.2 percent between April and June compared to the previous three months; France’s economy stagnated for the second quarter running and across the eurozone as a whole the collective GDP was flat. The UK was at least able to achieve a growth level of 0.8 percent,” said Drewry.

“The historical relationship between GDP and container trade growth seems in this market at least to have become completely severed,” it commented.

The buoyant cargo flows this year have been attributed to restocking by retailers taking advantage of favorable factors, including currency exchange, low interest rates, and a fall in prices offered by some Asian suppliers.

“Some form of correction was perhaps overdue; the Asia-North Europe trade has barely grown over a period of some six years with the annual headhaul volume of 2013 scarcely more than 4 percent above that of 2007,” said Drewry.

As for freight rates, they have remained volatile “and an all too-familiar monthly pattern has established itself,” it noted. “The carriers pump up the rates at the start of the month through the medium of a GRI but during the course of the month most of what they achieve is given away.”

At the end of July, market rates stood at US$2,360 per 40 foot, jumped to $2,877 in the first week of August, only to drift back down again to $2,360 on August 28.

Drewry expects the growth in headhaul cargo to slow as the current year wears on and forecasts that rates will continue to fluctuate.

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