Drewry:

Tariffs threaten 1% of global box trade

Imposition of tariffs on goods imported to the US from China will only affect carriers in a worst-case scenario. But even an improving supply-demand balance this year will not help carriers turn a profit, analysts say

News ID: 80108

Date: 05 July 2018 - 11:00

Optimism persists that global demand growth will outstrip demand despite looming trade war

A WORST-CASE SCENARIO COULD SEE 1.8M TEU OF CHINESE EXPORTS TO THE US LOST TO THE TRADE.

AS MUCH as 1.8m teu, or nearly 1% of world loaded container liftings, could be lost to the market as a result of the imposition of tariffs if the trade war between the US and China escalates, according to analysts at Drewry.

Additional tariffs of 25% on a list of 818 Chinese products, worth approximately $34bn, are scheduled to be collected by US Customs on July 6.

A second list of 284 newly recommended products covering $16bn is being reviewed, while there are threats of further tariffs on as much as $400bn of goods to follow if China retaliates with tariffs of its own.

But Drewry research shows that the revised lists announced on June 15 were heavily weighted towards industrial goods, while also being readily available from other trading partners.

“China only exported about 13% of the first list of products to the US last year and around 8% of products on the second list,” Drewry said. “As things stand, the impact from the initial two lists of Chinese products alone would be relatively insignificant at around 200,000 teu.”

Drewry’s assessment is based on three scenarios, published in its quarterly Container Forecaster, that see a range of tariffs of $50bn to $450bn being applied to Chinese imports.

“With other sourcing options available, tariff increases on Chinese goods on these initial products lists will most likely create a small amount of trade diversions and raise the prospects of other exporting partners of the US,” said Drewry container research manager Simon Heaney.

“The current risk threat to container demand is relatively low, even when factoring in tit-for-tat measures and disputes with other trading partners, but there is clearly the potential for matters to get much darker if additional tariffs are forthcoming.”

He said the biggest risk was unpredictability and the potential of a trade war to knock confidence in the global economy.

Drewry has upgraded its demand growth forecast for the next two years to 6.5% and 5.8% respectively, and expects supply growth of 5.4%, supporting a rebalancing of the supply and demand equation.

“There will be some gain for carriers this year in the form of increased demand and slowly improving supply-demand, but a lot more pain,” Mr Heaney said.

“Escalating fuel prices have caused us to slash the industry’s profitability forecast to breakeven and while freight rates are expected to rise modestly in the second half of 2018 it won’t be sufficient to turn things around. In some ways, buoyant demand is a problem for carriers right now as every extra box shipped at a loss only amplifies the deficit.”