A few weeks ago, I wrote about trans-Pacific shipping and the US economy, noting:
It's hard to make sense of the current state of US trade with the Far East, particularly China ... If you put those two reports side-by-side, something's seriously out of whack. Imports can't be lower than ever by one metric, but higher than ever by another!
I'd love to know what's going on to cause this confusion. I suspect it has several causes ... Clearly, there are a lot of mis-matches somewhere in the system.
If anyone has a better idea what's going on, please share it with us in Comments, as US imports are a key economic metric.
As if to answer my question, the Wall Street Journal has just offered an interesting look at how container shipping lines are using the COVID-19-caused shipping crisis to reorient their approach to their industry.
Shipping lines continually slashed prices in years past to compete in declining markets. Under the health crisis that has rocked the global economy, however, carrier executives have reined back capacity in a display of discipline they’d long talked about but had never undertaken.
Container shipping has been marred by chronic excess capacity, and carriers have responded by undercutting each other in endless battles for market share at the expense of profit margins. Freight rates have often gone into tailspins that left revenues barely covering operational costs.
As demand collapsed from the city lockdowns in March and April, however, liner companies started canceling sailings and sidelining ships. At the same, falling oil prices because of pandemic-induced lockdowns sent fuel costs for carriers down sharply, a reversal from expectations that bunker costs would soar after a mandatory switch to cleaner fuels.
“All of a sudden, supply came in line with demand with huge fuel savings as a bonus,” said Jonathan Roach, container analyst at London-based Braemar ACM Shipbroking. “Doom and gloom forecasts were put aside and so far, we are looking at a highly profitable year.”
. . .
The turnaround suggests a new business approach has taken hold. Long-held convictions that big fleets and dominant market share would somehow, someday lead to profits have faded. Operators now insist they’ll deploy capacity only where it will pay.
There's more at the link.
If shipping lines are now sailing their vessels only when demand justifies it, that factors in to US trans-Pacific trade. Ships that are moving are filled to near capacity. That factors into trade calculations, as the volume/percentage of a ship's cargo (i.e. number of containers per vessel) that's offloaded on our shores goes up. However, if there's reduced demand, ships that would normally be sailing with partial cargoes are no longer being dispatched. If numbers of ships are used as a metric of trans-Pacific commerce, clearly, trade has fallen off. The actual number of containers shipped, and/or the value of their contents, are also factors, of course; but between both earlier metrics, the confusion over import volumes may be explained.
In case you're wondering why I pay attention to shipping and transportation, remember that they're critical metrics in assessing the health (or otherwise) of nations and economies. General Omar N. Bradley is credited with the saying, "Amateurs study tactics; professionals study logistics". He was speaking in a military context, of course, but it applies equally well to the study of economics. If you want a "canary in the coal mine" for what's coming our way, good or bad, in business and commerce, I don't know a better warning sign than the health of the logistics sector.
Peter
I forgot about that when I read your last article.
ReplyDeleteIt is like airlines flying with full planes instead of half full, or hotels with empty rooms - like ships, their costs are (almost) the same regardless of capacity.
This is the reason that many people in the industry keep track of container numbers (TEU - twenty foot equivalent units) instead of ship sailings.