The prospects for world trade volumes are darkening. The latest projections from the World Trade Organisation (WTO) included a marked reduction in the rate of growth in merchandise trade with the organization now expecting a “volume growth of 3.0% in 2022—down from its previous forecast of 4.7%—and 3.4% in 2023”.
The organisation ascribes this to the war in Ukraine, because “despite their small shares in world trade and output, Russia and Ukraine are key suppliers of essential goods including food, energy, and fertilizers, supplies of which are now threatened by the war. Grain shipments through Black Sea ports have already been halted, with potentially dire consequences for food security in poor countries.”
However, the WTO does admit that the war in the Ukraine “is not the only factor weighing on world trade” with the “lockdowns in China to prevent the spread of COVID-19 are again disrupting seaborne trade at a time when supply chain pressures appeared to be easing. This could lead to renewed shortages of manufacturing inputs and higher inflation”.
What the WTO pays less attention to is the condition of the US economy. Inflation seems to be having a significant effect on consumer spending, with the Commerce Department reporting a significant slow-down in consumer spending in February as compared to January. In part, this might be structural, with shoppers moving towards service-related purchases and away from consumer durables, which were favoured during the past couple of years. If this trend is sustained it will have a significant impact on the logistics infrastructure in the US and elsewhere. The West Coast ports have been overwhelmed by the flow of items such as garden furniture from South East Asia. If American consumers reduce their demand for these items, congestion is likely to ease.
Freight rates in container shipping and air freight will be heavily influenced by all these factors. The supply situation in airfreight is changing rapidly as belly-freight surges onto the market. The position in sea freight is less dramatic as the supply of new ships will not hit a high for another twelve months. However, any lessening in demand will bring forward a fall in prices. Even with the effects of the Chinese situation and the war in Ukraine, the key number to watch will be demand in the US.
Source: Transport Intelligence, 14th April 2022
Author: Thomas Cullen