Ronald D. White, Contributor
A truck hauling a shipping container passes through a Hong Kong container terminal April 1, 2006. The growth in international trade is now on a slowing trend. - REUTERS
LOS ANGELES (Los Angeles Times):
A SLOWDOWN in the furious growth pace of international trade, combined with a building spree of ever-larger ships means shipping cargo around the world is becoming cheaper.
In both 2003 and 2004, dubbed 'the super cycle' by Drewry Shipping Consultants of London, worldwide trade grew by 14 per cent. The growth rate slowed to 11.5 per cent in 2005 and is expected to drop to less than 10 per cent in 2006 and about nine per cent in 2007.
"Typically, people were paying US$2,000 to move a container from Hong Kong to Los Angeles last year. Now, it is down to about $1,800 to US$1,900,'' said Kelby Woodard, a principal at Minnesota-based Trade Innovations Inc., a consulting company for importers and customs administrators.
Several factors are weighing on the industry.
ECONOMIC COOLING
Chief among them is the growing evidence of economic cooling in the U.S. and other countries, coupled with rising prices and interest rates. Signs of inflation, particularly red-hot energy costs, led Federal Reserve Chairman Ben S. Bernanke on Monday to pronounce the price trends "unwelcome" and the U.S. economy "in a period of transition."
With more money going to gasolene and other basics, less cash might be available for other things, including the imported products that arrive by the shipload each day.
Another factor that could slow shipping growth is that many U.S. and European manufacturers already have moved their manufacturing overseas, bringing a moderating in new outsourcing. At the same time, worldwide containership capacity is likely to grow 14 per cent this year and 11 per cent in 2007.
The world's largest shipping company is feeling the pinch.
EARNINGS COULD FALL
In March, Copenhagen-based A.P. Moller-Maersk warned that earnings would fall "considerably" because of a sharp decline in rates. That sparked a round of stock downgrades by investment companies, including UBS, which in a May 31 report to investors said, "With capacity increasing on average by up to 15 per cent through '06 - '08, and demand running at 10 per cent, we believe it is very early in the current shipping downturn."
Those assumptions aren't shared by the Transpacific Stabilisation Agreement, a group of 11 major container shipping lines that carry more than 70 percent of the boxed cargo that moves between Asia and the U.S. Its executive director, Albert A. Pierce, said in a statement that trade growth was likely to slow as China focused more on public infrastructure spending and its own rising domestic demand, but he added that ocean carriers expected a gradual slowing of cargo growth, not a steep drop.
Niels Erich, a spokesman for the shipping group, said talk of a slowdown was overblown because so many U.S. manufacturers relied on China.
"In the past three years," he said, "there has been a shift in the trans-Pacific market. Now, it is less a trade lane than it is a supply chain corridor. China ... is a supplier to the U.S. now."
Robert Sappio, senior vice-president of trans-Pacific trade for American President Lines, said predictions had been wrong before, such as in 2004, when experts failed to foresee that year's explosive trade growth.
Sappio said that APL ships from Asia to the East Coast were full and that those to the West Coast were running at about 90 percent of capacity. But APL's Pacific fleet runs against the industry grain, relying on vessels that carry about 5,500 20-foot containers.
Still, some shipping lines are dropping freight rates as they position themselves to ensure they can fill their bigger ships.
Isaac Larian, chief executive of toy maker MGA Entertainment, said he was saving more than enough per container this year to offset the $100 surcharge per box for moving his products out of the ports during peak hours.
The maker of Bratz dolls said competition among shipping companies also had improved performance.
"We're not just ahead financially. We are also getting containers quickly," Larian said. "Now, it is more efficient and cheaper."
