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Sept.7, 2015

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TRADING PLACES 78 THE JOURNAL OF COMMERCE SEPTEMBER 7.2015 Peter Tirschwell PUT ON YOUR SEATBELTS THE TURBULENCE SWEEPING global stock markets during the past few weeks is a belated recognition of what people involved in supply chains, including container ship - ping, have know n for a while: Apart from a few bright spots such as U.S. imports, growth globally is slowing, in large part because of the slowdown in China, and with it has come growing overcapacity and heavier rate pressure in global container markets. The World Trade Service, a sister product of The Journal of Commerce within IHS, in July downgraded its forecast for global 2015 containerized shipping growth from 4.4 to 3.5 percent in terms of volume. This is similar to Alphalin- er's current global growth forecast of 3.9 percent. Global trade in value terms declined 2 percent in the first half, the worst performance since 2009, indicating trade growth is lagging that of GDP, a reversal from prior decades, according to the World Trade Monitor. China has been the main driver of container volumes globally since the 1990s, and the slowdown in its trade goes a long way in explain- ing the slowdown in containerized volumes globally. According to the World Trade Service, China's containerized exports will grow 5.2 percent this year after increas- ing 4.9 percent la st yea r a nd 3.5 percent in 2013. The slight antici- pated growth in China's exports this year is beside the point. Its annual growth in containerized exports between 2002 and 2007 was not lower than 15.7 percent, and growth hit a high of 23.4 percent in 2004, according to WTS numbers. The slowdown has been staggering. The U.S. numbers are a bit more sanguine this year, but nowhere near the double-digit growth rates in the 2000s, a period that increas- ingly looks like a historical anomaly. Mario Moreno, senior economist for The Journal of Commerce, sees U.S. containerized imports growing 6.6 percent this year, a slight upgrade of 0.3 percent from his June fore- cast, and sees container import vol- umes hitting a new high this year. Moreno slightly upgraded his U.S. export forecast from a 5.8 percent retraction to a 4 percent decline, mostly because of a better-than- expected second quarter. Still, he said, "I expect more losses for the U.S. export trade due to the strength of the U.S. dollar and the stubbornly sluggish global manufacturing activ- ity and weakening global economic conditions." The bottom line of all this is a darkening picture for global trade. Growth is slowing in developing markets, especially those that have benefited from China's voracious raw materials consumption, while declining energ y prices benefit consumer-driven economies such as the U.S., but hit the producing countries hard. This will translate into more turbulence in container shipping. The carriers are in the midst of a big-ship ordering spree that will see global capacity grow this year by a forecast 8.8 percent versus demand growth of well below half that fig- ure. Sixty-eight ships of 18,000- to 21,000-TEU capacity are on order, according to A lpha liner, w it h another 61 of 13,300 to 17,999 TEUs in the pipeline. The carriers didn't get their trade forecasts wrong. Rather, these orders reflect the race to the bottom in costs that currently drive carrier strategies. But the result is the same, which is worsening overcapacity spilling over from trunk trades such as Asia-Europe to the trans-Pacific and into the more niche trades that for years enjoyed relative calm. They now are increasingly caught up in the same volatility and rate pres- sure seen on the east-west headhaul trades. Of particular note is the trans- Pacif ic, where one ast ute a nd credible observer with whom I spoke last week sees a "bloodbath" in the making during the next year as mega-ship tonnage cascades from Asia-Europe and the expanded Panama Canal provides a second opportunity (beyond the Suez route to the North American east coast) to deploy tonnage of 10,000 TEUs or greater. Despite talk of a Cosco-China Shipping merger, there remains little expectation of a major con - solidation wave that could result in a limited number of carriers able to exercise price leadership — shippers' ultimate nightmare. Still what's coming isn't pretty, so it's not hard to imagine some of the weaker carriers merging. Thus, for shippers, it will be more of the same: intensively vola- tile rates, a greater port-to-port preference by carriers, challenges in customer service and difficulties getting quality data out of the carri- ers. Brace yourselves. JOC Contact Peter Tirschwell at and follow him on Twitter: @petertirschwell. The bottom line of all this is a darkening picture for global trade.

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