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Container traffic between Asia and South America is boosting and consolidating its recovery.
The nascent recovery in the container trade from Asia to East Coast South America that started in the fourth quarter 2016 continued into the first quarter 2017, albeit at a slower pace. Statistics supplied by Datamar show that southbound Asia to ECSA box volumes increased by 4.6% year-on-year in the first quarter, following on from an 8.6% hike in the fourth quarter. Prior to that, the trade hadn’t witnessed any quarterly growth since the start of 2015.
The recovery is being driven entirely by the Brazilian inbound market, which posted two rounds of double-digit gains in the past two quarters. In contrast, the inbound trade to the Plate region of Argentina and Uruguay was down by 13% in the first quarter to follow comparatively tame growth of 2.6% in 4Q16.
Both Brazil and Argentina suffered painful recessions last year but consumption was particularly stunted in the latter economy due to a currency devaluation and inflation topping 40%. Brazil’s currency was one of the few to strengthen against the US dollar thanks in large part to continued foreign investment so it is no surprise that it is out in front in terms of container traffic. The IMF is predicting that both economies will be on much firmer footing this year with Argentina’s GDP growth forecast at 2.2% (from -2.3% in 2016) and Brazil’s a more modest 0.2% (from -3.6%). Consumer spending in Argentina should receive a boost in the second-half of the year thanks to salary increases arriving from collective bargaining agreements.
Highlighting how deep the slump in Asia-ECSA container traffic has been, even after two positive quarters the rolling 12-month average remains in negative territory at -5.5% as of March. The good news is that the arrow is trending very sharply upwards. We anticipate that it will break the neutral line early in the second-half of the year and will continue to rise thereafter, especially if as expected the Plate economies can add some weight to the recovery rather than acting as a drag.
Nothing much has happened to capacity in the trade since January when Hyundai Merchant Marine moved from being a slot charterer to vessel provider on one of three weekly services. Neither have carriers looked to tweak the available slots through void sailings with services operating at full-strength since March. Forward schedules indicate that void sailings will continue to be off the menu in June, which suggests that carriers expect to have to cater for more volumes. However, because June 2016 included three missed voyages capacity next month will be 11% higher than a year ago.
Volatile monthly loads combined with the reluctance to adjust capacity through void sailings has meant that Asia-ECSA ship utilisation has been very up and down in recent months, but nonetheless spot market rates have been relatively stable through this period. Drewry’s Container Freight Rate Insight shows that Shanghai to Santos spot rates are slowly climbing back towards $3,000 per 40ft container following a Chinese New Year-induced lull in February.
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