Maria L.C. Bertram is international trade consultant for Global Insight (www.globalinsight.com), which provides consulting services, data, and forecasts for more than 200 countries and many industries. Global Insight's trade & transportation practice specializes in consulting, data, forecasts, and analysis for global trade and transportation trends.
The fact that China's exports have been growing at astounding rates should hardly come as a surprise to anyone these days. What's less well known is that China's trading partners and its export commodities are changing. In response to those developments, new ocean shipping options are emerging to handle Chinese exports, especially to its largest trading partner, the United States.
On average, China's export tonnage grew at a rate of 10.2 percent annually between 1995 and 2005, reaching 417 million tons in 2005. Although the pace of export growth is expected to slow to a long-term annual average of 5.2 percent through 2025, Chinese exports are still forecast to exceed 1.1 billion tons by that year.
Many of China's exports are containerized; in fact, the country shipped out more than 20 million TEUs (twenty-foot equivalent units) in 2005. Growth in containerized exports, which include such commodities as apparel, office furniture, and toys, is expected to average 8.2 percent over the long term—a faster growth rate than that predicted for Chinese exports as a whole.
The expected tapering of China's export growth rates reflects an economy where foreign market penetration and sales are reaching more mature levels, despite the fact that gross domestic product (GDP) growth has been extremely strong in recent quarters. Regardless, China's sizzling economic expansion will decelerate considerably in the medium to long term because of anticipated weaker domestic growth in many trading partners' economies. Continued monetary tightening by China's central bank will also play a role in that deceleration.
Predictions of slower economic and export growth notwithstanding, China continues to experience an export boom on the back of the low cost of its products. Although some in the media have attributed this to an artificially low exchange rate for China's currency, the renminbi, the reason continues to be China's lax environmental policies and its aggressive use of available labor. China has also actively pursued trade agreements and overseas sourcing deals with developing countries in Africa and South America to ensure a steady flow of the raw materials it needs for export production.
Trading partners, commodities on the move
The United States has become China's largest export trade partner on the strength of its foreign direct investment in China and its growing demand for imported containerized goods. The United States, in fact, consumed 34 percent of China's containerized exports in 2005. So far this relationship has been reciprocal, with both countries playing critical roles in each other's economy.
In the years ahead, though, China will move away from reliance on the United States as its main export customer. Even though Chinese containerized exports to the United States are expected to grow from about 33 percent of all U.S. imports to around 50 percent by 2013, the relative importance of the U.S. market will decline somewhat from China's standpoint. Indeed, China has already begun seeking out new customers for its exports. Latin America (fueled primarily by Mexico) is buying a larger share of China's exports. In addition, one-third of the world's container trade takes place among Asian countries in the "intra-Asia" trade. Despite a diminishment in its relative importance, however, the United States will remain China's largest export partner for the foreseeable future (see Figure 1).
China's top containerized export commodities include furniture, metal products, apparel, plastic items, textiles, footwear, and other miscellaneous manufactured goods (such as toys and souvenirs). China began its manufacturing boom with the production of low-value products with low intellectual-property risk. It is just now approaching full market penetration for items such as footwear—walk into your nearest shoe store and you'll see for yourself. As China approaches market saturation in low-value goods and continues to gain manufacturing expertise, export production is moving up the value chain and penetrating new product areas. Over the next 20 years, exports of office and computing equipment, furniture, electrical goods, and semiconductors are expected to enjoy strong growth and will represent sizeable shares of China's exports (see Figure 2).
Shipping routes begin to shift
Even though China is expanding its trade with other Even though China is expanding its trade with other countries around the globe, the U.S. market is still expected to remain China's largest single export customer in the long term. Current forecasts see the United States importing nearly 34 million TEUs from China in 2025.
The shipping routes for U.S.-bound containers are expected to shift over time. While the majority of containers today (roughly 73 percent) travel from China to the U.S. West Coast, only a portion of that traffic actually remains on the West Coast to serve that market. The balance is transported inland by rail or truck. Population growth in the midwestern and southern United States will reinforce this trend. However, concerns over long-term rail capacity and toll increases imposed by the Panama Canal Authority to pay for the canal's expansion may change the way China's exports reach North America.
Some shipping lines are announcing new all-water services from Asia to the U.S. East Coast via the Suez Canal, while others are planning to take larger ships through an expanded Panama Canal. New and/or expanded port facilities in locations like Lázaro Cardenas and Punta Colonet in Mexico and Prince Rupert in Canada (which is two days closer to Shanghai than Los Angeles/Long Beach) will give carriers more options to maintain reliability, control costs, and serve North American markets effectively.
As purchasing power increases around the world and trade is increasingly liberalized, China is realizing that the United States is no longer the only game in town. Still, continued growth in the U.S. market's demand for Chinese exports is driving innovation in ocean shipping. Any new practices that develop will surely spread globally, promoting more trade among other countries.
Container imports at U.S. ports are seeing another busy month as retailers and manufacturers hustle to get their orders into the country ahead of a potential labor strike that could stop operations at East Coast and Gulf Coast ports as soon as October 1.
Less than two weeks from now, the existing contract between the International Longshoremen’s Association (ILA) and the United States Maritime Alliance covering East and Gulf Coast ports is set to expire. With negotiations hung up on issues like wages and automation, the ILA has threatened to put its 85,000 members on strike if a new contract is not reached by then, prompting business groups like the National Retail Federation (NRF) to call for both sides to reach an agreement.
But until such an agreement is reached, importers are playing it safe and accelerating their plans. “Import levels are being impacted by concerns about the potential East and Gulf Coast port strike,” Hackett Associates Founder Ben Hackett said in a release. “This has caused some cargo owners to bring forward shipments, bumping up June-through-September imports. In addition, some importers are weighing the decision to bring forward some goods, particularly from China, that could be impacted by rising tariffs following the election.”
The stakes are high, since a potential strike would come at a sensitive time when businesses are already facing other global supply chain disruptions, according to FourKites’ Mike DeAngelis, senior director of international solutions. “We're facing a perfect storm — with the Red Sea disruptions preventing normal access to the Suez Canal and the Panama Canal’s still-reduced capacity, an ILA strike would effectively choke off major arteries of global trade,” DeAngelis said in a statement.
Although West Coast and Canadian ports would see a surge in traffic if the strike occurs, they cannot absorb all the volume from the East and Gulf Coast ports. And the influx of freight there could cause weeks, if not months-long backlogs, even after the strikes end, reshaping shipping patterns well into 2025, DeAngelis said.
With an eye on those consequences, importers are also looking at more creative contingency plans, such as turning to air freight, west coast ports, or intermodal combinations of rail and truck modes, according to less than truckload (LTL) carrier Averitt Express.
“While some importers and exporters have already rerouted shipments to West Coast ports or delayed shipping altogether, there are still significant volumes of cargo en route to the East and Gulf Coast ports that cannot be rerouted. Unfortunately, once cargo is on a vessel, it becomes virtually impossible to change its destination, leaving shippers with limited options for those shipments,” Averitt said in a release.
However, one silver lining for coping with a potential strike is that prevailing global supply chain turbulence has already prompted many U.S. companies to stock up for bad weather, said Christian Roeloffs, co-founder and CEO of Container xChange.
"While the threat of strikes looms large, it’s important to note that U.S. inventories are currently strong due to the pulling forward of orders earlier this year to avoid existing disruptions. This stockpile will act as an essential buffer, mitigating the risk of container rates spiking dramatically due to the strikes,” Roeloffs said.
In addition, forecasts for a fairly modest winter peak shopping season could take the edge off the impact of a strike. “With no significant signs of peak season demand strengthening, these strikes might not have as intense an impact as historically seen. However, the overall impact will largely depend on the duration of the strikes, with prolonged disruptions having the potential to intensify the implications for supply chains, leading to more pronounced bottlenecks and greater challenges in container availability, " he said.
A coalition of freight transport and cargo handling organizations is calling on countries to honor their existing resolutions to report the results of national container inspection programs, and for the International Maritime Organization (IMO) to publish those results.
Those two steps would help improve safety in the carriage of goods by sea, according to the Cargo Integrity Group (CIG), which is a is a partnership of industry associations seeking to raise awareness and greater uptake of the IMO/ILO/UNECE Code of Practice for Packing of Cargo Transport Units (2014) – often referred to as CTU Code.
According to the Cargo Integrity Group, member governments of the IMO adopted resolutions more than 20 years ago agreeing to conduct routine inspections of freight containers and the cargoes packed in them. But less than 5% of 167 national administrations covered by the agreement are regularly submitting the results of their inspections to IMO in publicly available form.
The low numbers of reports means that insufficient data is available for IMO or industry to draw reliable conclusions, fundamentally undermining their efforts to improve the safety and sustainability of shipments by sea, CIG said.
Meanwhile, the dangers posed by poorly packed, mis-handled, or mis-declared containerized shipments has been demonstrated again recently in a series of fires and explosions aboard container ships. Whilst the precise circumstances of those incidents remain under investigation, the Cargo Integrity Group says it is concerned that measures already in place to help identify possible weaknesses are not being fully implemented and that opportunities for improving compliance standards are being missed.
By the numbers, overall retail sales in August were up 0.1% seasonally adjusted month over month and up 2.1% unadjusted year over year. That compared with increases of 1.1% month over month and 2.9% year over year in July.
August’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.3% seasonally adjusted month over month and up 3.3% unadjusted year over year. Core retail sales were up 3.4% year over year for the first eight months of the year, in line with NRF’s forecast for 2024 retail sales to grow between 2.5% and 3.5% over 2023.
“These numbers show the continued resiliency of the American consumer,” NRF Chief Economist Jack Kleinhenz said in a release. “While sales growth decelerated from last month’s pace, there is little hint of consumer spending unraveling. Households have the underpinnings to spend as recent wage gains have outpaced inflation even though payroll growth saw a slowdown in July and August. Easing inflation is providing added spending capacity to cost-weary shoppers and the interest rate cuts expected to come from the Fed should help create a more positive environment for consumers in the future.”
The U.S., U.K., and Australia will strengthen supply chain resiliency by sharing data and taking joint actions under the terms of a pact signed last week, the three nations said.
The agreement creates a “Supply Chain Resilience Cooperation Group” designed to build resilience in priority supply chains and to enhance the members’ mutual ability to identify and address risks, threats, and disruptions, according to the U.K.’s Department for Business and Trade.
One of the top priorities for the new group is developing an early warning pilot focused on the telecommunications supply chain, which is essential for the three countries’ global, digitized economies, they said. By identifying and monitoring disruption risks to the telecommunications supply chain, this pilot will enhance all three countries’ knowledge of relevant vulnerabilities, criticality, and residual risks. It will also develop procedures for sharing this information and responding cooperatively to disruptions.
According to the U.S. Department of Homeland Security (DHS), the group chose that sector because telecommunications infrastructure is vital to the distribution of public safety information, emergency services, and the day to day lives of many citizens. For example, undersea fiberoptic cables carry over 95% of transoceanic data traffic without which smartphones, financial networks, and communications systems would cease to function reliably.
“The resilience of our critical supply chains is a homeland security and economic security imperative,” Secretary of Homeland Security Alejandro N. Mayorkas said in a release. “Collaboration with international partners allows us to anticipate and mitigate disruptions before they occur. Our new U.S.-U.K.-Australia Supply Chain Resilience Cooperation Group will help ensure that our communities continue to have the essential goods and services they need, when they need them.”
A new survey finds a disconnect in organizations’ approach to maintenance, repair, and operations (MRO), as specialists call for greater focus than executives are providing, according to a report from Verusen, a provider of inventory optimization software.
Nearly three-quarters (71%) of the 250 procurement and operations leaders surveyed think MRO procurement/operations should be treated as a strategic initiative for continuous improvement and a potential innovation source. However, just over half (58%) of respondents note that MRO procurement/operations are treated as strategic organizational initiatives.
That result comes from “Future Strategies for MRO Inventory Optimization,” a survey produced by Atlanta-based Verusen along with WBR Insights and ProcureCon MRO.
Balancing MRO working capital and risk has become increasingly important as large asset-intensive industries such as oil and gas, mining, energy and utilities, resources, and heavy manufacturing seek solutions to optimize their MRO inventories, spend, and risk with deeper intelligence. Roughly half of organizations need to take a risk-based approach, as the survey found that 46% of organizations do not include asset criticality (spare parts deemed the most critical to continuous operations) in their materials planning process.
“Rather than merely seeing the MRO function as a necessary project or cost, businesses now see it as a mission-critical deliverable, and companies are more apt to explore new methods and technologies, including AI, to enhance this capability and drive innovation,” Scott Matthews, CEO of Verusen, said in a release. “This is because improving MRO, while addressing asset criticality, delivers tangible results by removing risk and expense from procurement initiatives.”
Survey respondents expressed specific challenges with product data inconsistencies and inaccuracies from different systems and sources. A lack of standardized data formats and incomplete information hampers efficient inventory management. The problem is further compounded by the complexity of integrating legacy systems with modern data management, leading to fragmented/siloed data. Centralizing inventory management and optimizing procurement without standardized product data is especially challenging.
In fact, only 39% of survey respondents report full data uniformity across all materials, and many respondents do not regularly review asset criticality, which adds to the challenges.