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The Perils of Seasonality to Trade

May 26, 2017

It seems that on a monthly basis the seasonality of trade plays havoc with port and transportation planning. We saw some very drastic volume declines at most West Coast ports in February, in excess of 20 percent at all ports except Vancouver. That was followed by increases in March but not at the same level of change. For this we can mostly blame the Chinese Lunar New Year. But there are other factors at play.

 

Chinese factory output data slowed markedly in April, suggesting a weakening of demand in overseas markets. The Purchasing Managers Index slipped to 51.2 in April from 51.8 in March and the new orders index dropped a whole point. It is, however, hard to trust too much in these figures as China has faced accusations for manipulating its economic data. President Xi was quoted as saying “We must judge the economic situation in the big logic of the new normal.” What does he mean by new normal?

 

In the United States, the economy continues to slowly grow. Gross domestic product was lower than expected in the first quarter but unemployment has dropped to levels not seen since before the Great Recession and, best of all, labor employment has increased dramatically. Our view therefore remains unchanged: There is nothing to worry about in the first half of the year, and growth is expected to continue in the second half even if it comes at a slower rate.

 

Our forecast suggests that import growth will continue into the third quarter but then weaken in the following two quarters, resulting in 2017 being 3.2 percent up on 2016 to reach just over 22 million TEU for the combined North American ports that we monitor. The East Coast is projected to outperform the West coast.

 

The three mega alliances have now, more or less, announced their port rotations for each of their services. What we see is bigger ships, fewer ports of call and better management of capacity. This means importers will need to ensure that their logistics-management skills cope with the larger bundles of volumes being moved on individual services while terminals will be faced with the task of moving more containers in the shortest possible time. Freight rates will move up for the next few months, but as demand growth slows we may see more market-share strategies returning, which will depress freight charges.

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