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Intra-Asia riding high.
Container traffic within Asia is flying according to trade statistics, but carriers are yet to feel the benefit.
While a number of analysts (ourselves included) in the Western hemisphere are pondering the container trade implications of the US’ decision to backslide from planned free trade agreements, trading partners elsewhere on the planet are simply getting on with doing business with one another, and at a very brisk pace. As reported last week, container traffic surged ahead in the first quarter by an estimated 10% thanks in large part to a rapid escalation in intra-regional volumes, particularly within Asia.
The provisional 1Q17 trade lane data from Container Trades Statistics (CTS) indicates that container trade within Asia (encompassing Greater China, North Asia and Southeast Asia) jumped by a prodigious 23.5% year-on-year to reach 10.8 million teu. This is all the more remarkable as the same data source tells us that this follows on from zero growth in 2016 when Intra-Asia box volumes closed on 39.2m teu.
Interrogation of the 1Q17 data reveals that the busiest and fastest growing lane within Intra-Asia is Greater China to/from Southeast Asia, which grew by a staggering 36% to 3.4 million teu. It has been over 10 years since China signed a trade pact with the 10 member states of the Association of Southeast Asian Nations (ASEAN) in 2005 and while trade growth was initially muted it really started to accelerate quickly from 2009 onwards. If the latest container data is to be believed trade between the two blocs went into overdrive at the start of this year.
Conditions look set for the two-way trade between Greater China and Southeast Asia to continue to take a bigger slice of the container pie, even if the rapid growth rates settle down. The IMF’s World Economic Outlook report, updated in April, predicts that the economies of China, Vietnam, Malaysia and Indonesia will all consistently see GDP growth in the region of 6% per annum over the next five years. In contrast, the outlook in the more mature North Asia region is far more muted with South Korea expected to hover at 3% growth now until 2022, while Japan is forecast to bumble along at below 1% pa.
It is possible that CTS’ numbers for the Intra-Asia trade are slightly over-inflated because the method they use relies on a extrapolation from a sample group of contributing carriers and estimates for data gaps, but any retrospective downwards revision would be hard pressed to alter the underlying story that container growth currently resides in the regional trades to a far greater extent that it does in the deep-sea markets. At the time of writing the available 1Q17 container throughput statistics (that do not account for origin or destination) for Asia ports indicate far lower overall growth than seen in the Intra-Asia numbers. Our sample of Greater China ports were up by 7% year-on-year, versus 5% and 3% for the admittedly smaller batch of North Asia and Southeast Asia ports. Inconclusive as this is for the time being, it does imply that the strong Intra-Asia growth is being watered down by trade to and from other regions.
Note: Based on data available as of 17 May 2017 ?Source: Drewry Maritime Research
Surely, with such incredible demand growth Intra-Asia carriers are seeing the financial rewards? Not so, according to Drewry’s Intra-Asia Freight Rate index, a weighted benchmark of spot rates for the busiest lanes published in our Container Freight Rate Insight. Average Intra-Asia spot rates are just starting to show the faintest of upwards inflection, but for about 18 months have stubbornly refused to shift much above $750 per 40ft container. At the same time, Intra-Asia specialist carriers Wan Hai and Regional Container Lines both reported operating losses for 1Q17. For Wan Hai, which previously was outperforming its more global rivals in the operating margin stakes, this was only the third quarterly operating loss in five years.
The weakness in Intra-Asia spot rates and disappointing carrier results does not necessarily debunk the demand high-growth story, as per the CTS data. They could merely reflect that as volumes have risen so too have the number and size of containerships being deployed within the trade, leaving the supply-demand balance as it was. Measuring Intra-Asia capacity is notoriously difficult with so many different trade lanes and numerous operators, many of which fail to provide sufficient schedule data online; so again we cannot conclusively say utilisation is higher or lower than before.
However, even without comprehensive supply-side data there is strong evidence that ships have followed the demand. Our research counts at least eight new Intra-Asia services being launched so far this year with newcomer SM Line at the forefront, while the shrinking idle fleet and resurgence of the charter market is also a sign of renewed demand for ships within Asia.
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