Relocate, relocate, relocate | Hellenic Shipping News Worldwide
The splintering of the world political order is changing who buys what from whom. More diversity in trading partners offers hope to improve woeful container imbalances.
The following is an extract from Drewry’s latest Container Forecaster report, just published.
A byproduct of the early-century outsourcing of manufacturing and the increasing reliance on China to be the world’s factory, was continuously widening container trade imbalances.
What the above chart tells us is that, generally, Asia’s requirement for empty containers has only got greater with each passing year this century. The notable exception was in 2009 when the global financial crash depressed container traffic. The pandemic boom year of 2021 pushed the imbalance to new heights, with an estimated 40 mteu repositioned from surplus (import) regions to demand (export) areas, as importing nations went crazy for Asian exports. The imbalance narrowed in 2022, but it was still the second highest on record.
As Table 1 shows, only three of the eight regions – Europe, Latin America and South Asia – are anything close to achieving imports and exports harmony.
North America and Africa import roughly 2.5x more loaded containers than they export. Empty steel containers are essentially their biggest export trade. This situation is inefficient, costly and certainly not environmentally friendly. Moving empty shipping containers is currently adding an astronomical “empty miles” cost of at least $16bn a year.
In an ideal world each region would have a roughly even split of containers coming in and containers going out, but instead, the growing inequality of manufacturing and consumption within regions has increased the risk of container shortages for net exporters (i.e. Asia) and the cost from storage and repositioning of empty containers.
It stands to reason, therefore, that any reversal of that process would reduce the container imbalance and associated inefficiencies and costs.
The China+ sourcing movement, borne of trade wars, the pandemic and heightened geopolitical volatility, could then instil greater supply chain robustness if it leads to better equilibrium of production and consumption at the regional level.
The great container relocation is already well under way, as can be seen in the container export data for Greater China, supplied by Container Trades Statistics (CTS), in Figure 2. As Western cargo owners have looked to lessen their reliance on China, so too has China diversified the customer base for its exports.
Based on a selected sample of China’s major container export partners, we see that the lowest 5-year CAGRs (Compound Annual Growth Rates) are generally reserved for the G7 countries (Canada being an exception). China’s fastest export CAGR from 2017 through 2022 was to South Korea, Malaysia, Brazil and Vietnam – all still relatively low-volume partners, for now at least.
China’s share of US container imports from Asia has dropped dramatically since the two countries’ trade war erupted in 2018, going from 69% in 2017 to 59% after five months of 2023 (see Figure 3). Nonetheless, they remain tied to one another through the sheer volume of bilateral container trade that far outweighs any other partnership. Breaking up was always going to get messy.
A dilution of trade between China and the US doesn’t necessarily mean that eastbound Transpacific volumes, or container imbalances, will be reduced. Some of the export trade will simply be substituted to another country within Asia.
The other option is that instead of going direct to the US, cargoes are first sent to either Canada or Mexico, before making their way across the border stateside. Again, this won’t move the dial regarding container imbalances.
Therefore, while China might not be directly serving the US as much it did, it kind of is doing so indirectly.
The annual data set used in Figure 1 includes some third-party “actuals” and some estimates of our own where there are gaps. Unfortunately, we don’t have visibility on all region-to-region traffic to be able to provide a comprehensive estimate for 2023 YTD, but what we do have suggests that the requirement for additional empty container repositioning will be similar to last year.
Looking at the long-run container imbalance in the Transpacific (Asia to North America) market, the eastbound-to-westbound ratio has come down from the crazy heights of the pandemic, when it peaked at 4.46 in 4Q21 (see Figure 4). The average ratio in 1H23 was 3.25, which compares to an average of 3.81 for the whole of 2022.
As things stand, the relocation of some of China’s container exports as we have seen is unlikely to significantly improve container imbalances as it doesn’t greatly change regional production/consumption ratios.
For the situation to dramatically improve there will need to be a step change in near-sourcing, and generally more levelling up of intercontinental imports and exports across all regions.
Until the situation flips it is almost inevitable that empties handling will continue rising.
Our view
A world with a more diverse manufacturing base would contain, or stop, the costly rise of the long-distance empty repositioning of containers on the big East-West routes, which costs billions of dollars annually.
The process of spreading the manufacturing load from China is well underway, but the country’s export dominance will last for many years, and so too will most of the regional container surpluses and shortages.
Source: Drewry
