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Container Insight Weekly
Container Insight Weekly

A strong start

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Container traffic growth from Asia to Australia continued apace in the first quarter of 2016. A softening economy and weakening Aussie dollar suggests the pace of growth will slow.

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Australia is in the middle of a rare double-dissolution election (when seats in both houses of parliament are contested) that could produce its fifth prime minster in three years. The battleground between the incumbent Liberal-National coalition and challengers Labour is the economy with the country adjusting to life now that China’s appetite for its natural resources has waned.

 

Nonetheless, container volumes into Australia from Asia surged forwards by 10.5% year-on-year in the first quarter, according to Container Trades Statistics (CTS). In the first three months of 2016 there were an extra 26,500 teu shipped from Greater China to Australia compared to 1Q15 to bring the quarterly total to 280,600 teu. From South East Asia the lift was 15,800 teu to 174,500 teu, while from North Asia the quarterly total was raised by 8,300 teu to 77,300 teu. Adding in volumes from Asia to New Zealand and the South Pacific islands didn’t adversely affect the first-quarter growth rate as combined volumes rose by 10.1%, above the full-year 2015 rate of 9.0%.

 

Such high growth in the container market is slightly at odds with Australia’s economic fortunes, which can be best described as steady. The start of the China Australia Free Trade Agreement (ChAFTA) at the end of 2015 and a brief rally for the Australian dollar in the first few months of the year appear to given the trade a fillip. The big question is how long will it last?

Figure 1 Southbound NE Asia to Oceania container traffic

Figure 1 Southbound NE Asia to Oceania container traffic

Source: Drewry Maritime Research

Figure 2 Southbound SE Asia to Oceania container traffic

Figure 2 Southbound SE Asia to Oceania container traffic

Source: Drewry Maritime Reseaerch

Figure 3 12-month rolling average of southbound Asia to Oceania container traffic (% change on previous year)

Figure 3 12-month rolling average of southbound Asia to Oceania container traffic (% change on previous year)

Source: Drewry Maritime Research

The “Aussie” moved from US0.68 in mid-January to US0.77 by the end of March but it has since slunk back following the announcement of the lowest inflation rise in seven-years, which caused Australia’s Reserve Bank to cut interest rates at the start of May by 0.25 points to a record low of 1.75% with the prospect of further cuts to follow.

 

Stalling living costs and cheaper credit might spur further consumer spending, but weighing against that is the falling currency and the fact that wage growth, at just 2% over the year to March, was the lowest ever recorded by the Australian Bureau of Statistics since its data series started in 1997. The unemployment rate has steadily been falling and is currently the lowest it’s been since September 2013 at 5.7%, but recent employment gains have come exclusively from part-time jobs as full-time appointments have fallen.

The IMF is currently predicting that Australia’s GDP will rise by 2.5% this year, the same as in 2015, which marked 25 years on continuous economic growth. For 2017 the IMF expects growth to rise to by 3%, with a more competitive currency cited as one the drivers.

 

The suspension of the China-Korea-Australia (CKA) service of Hanjin Shipping, T.S. Lines and Yang Ming (6 x 4,300 teu) combined with void sailings has helped to push load factors on the North East Asia to Australasia trade up to the mid-80% range as of March, but more is needed as ocean carriers are yet to see the benefit of the positive container demand growth as freight rates have remained stubbornly low. Drewry’s Container Freight Rate Insight reported that the average Shanghai to Melbourne spot price didn’t budge in April at $1,140 per 40ft container, around 17% down on where they started the year.

 

A new entrant is expected to join the trade later this year as Great Southern Shipping, a Chinese-Australian venture, will reportedly start a new connection in August using five Australian-flagged ships (rumoured to be 5,000 teu) on a triangular weekly route from Rizhao, on China's central east coast, to Brisbane, Sydney, Bell Bay, Melbourne, and Fremantle.

Figure 4 Southbound Asia to Oceania capacity, '000 teu

Figure 4 Southbound Asia to Oceania capacity, '000 teu

Source: Drewry Maritime Research

Figure 5 Southbound NE Asia to Oceania utilisation v rates

Figure 5 Southbound NE Asia to Oceania utilisation v rates

Source: Drewry Maritime Research

Table 1 NE Asia-Oceania - estimated monthly supply/demand positio

Table 1 NE Asia-Oceania - estimated monthly supply/demand positio

Source: Drewry Maritime Research

Table 2 SE Asia-Oceania - estimated monthly supply/demand position

Table 2 SE Asia-Oceania - estimated monthly supply/demand position

Source: Drewry Maritime Research

Our View

Much like the outcome of Australia’s general election on 2 July it’s very difficult to call what immediate direction the economy and container imports will take. Freight rates, however, will remain subdued without more capacity retrenchment.

Industry in a glance

World Container Index

East-West composite (US$/feu)

IFO 380 Bunker Prices

Rotterdam (USD$ per tonne)

Global Port Throughput

Jan 2008 = 100

Idle Capacity

(teu)