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Trade growth could lead shortage

Trade growth could lead shortage
Cargo container traffic on the Asia to West Coast route will see modest growth this year after seeing a 16 percent drop last year, but whether there will be enough ships to handle all that cargo in a timely fashion is another question.

Trade Growth Could Lead to Shortage in Ships.

Cargo container traffic on the Asia to West Coast route will see modest growth this year after seeing a 16 percent drop last year, but whether there will be enough ships to handle all that cargo in a timely fashion is another question. Major cargo container carriers, reeling from one of their worst years in history, idled about 11 percent of the world"s cargo container fleet of 4,731 vessels between September 2008 and now. Many of those ships are mothballed off the coasts of Singapore, the Philippines and China.
Carriers also canceled about 6.7 percent of new ship orders, and some pushed delivery off to 2013.

?I am not sure we will see a huge influx of tonnage [ships] coming back in,? said Eivind Kolding, chief executive of the Danish Maersk Line, the largest cargo container carrier in the world. ?It simply isn"t economical at this stage.?

Cargo container lines estimate they lost $15 billion to $20 billion last year, a record for an industry that burgeoned when the metal cargo container became popular, starting in the 1950s.

While last year was one of the worst trade years on record, cargo volumes started to rise in December as retailers fattened up their inventories and consumers hit the stores again.

?Historically, the container business has grown by two to three times of global trade and unfortunately that works in the negative,? Kolding said. ?We saw the very bottom in May and June of last year, and slowly we are seeing an improvement since then.?

Kolding was speaking at the 10th annual Trans-Pacific Maritime Conference, organized by the Journal of Commerce, held March 1?2 in Long Beach, Calif. It is two days when carriers and shippers exchange viewpoints and hear predictions about the future. This year, nearly 1,500 people from ports, cargo container lines, logistic services, trucking companies and terminal operators attended the event, held at the Long Beach Convention Center.

In addition to idled ships and deferred orders, shipping executives talked about how ocean-going carriers were frequently ?slow steaming,? or sailing at a slower pace on their routes to save money. While this is a phenomenon that started out of economical necessity, it could become the norm. ?I believe it is here to stay,? said Kolding, who estimated that reducing a vessel"s sailing speed by 20 percent results in a 50 percent savings in bunker fuel. However, that means a ship takes two extra days to sail from Hong Kong to Los Angeles.

The drop in global trade meant container freight rates declined 29 percent last year. The spot rate in December for a 40-foot container moving from Hong Kong to Los Angeles was $1,268, compared with $1,767 a year earlier. But those rates have been on the mend, rising in February to $2,000.

Cargo forecast

No one disputes the world is getting back on its economic feet. But in the United States, it will be a slow recovery. The country"s gross domestic product is expected to creep up 2.7 percent in 2010 and another 2.4 percent in 2011.

Mario Moreno, an economist with PIERS Maritime Research, said U.S. imports of cargo containers should rise 9.1 percent this year to 15.8 million containers after diving 15.1 percent last year. In 2011, imports should increase 6.2 percent to 16.8 million containers. But that is still far off from the all-time high, in 2006, of 18.57 million containers.

For the ports of Los Angeles and Long Beach, the peak volume of 15.8 million containers in 2006 will not be reached again until about 2013.

?The greatest threat is the enduring pullback of the American consumer,? said Moreno, who noted the housing market is still fragile and foreclosures could climb.

Other dangers include inflation and property-price bubbles in Asia, tensions in trade relations between the United States and China, and tightening of the U.S. monetary policy too fast.

On the export side, business is looking fairly healthy. Containerized exports from the United States are expected to jump 7.3 percent in 2010 to 11.1 million containers.

Trading with China

Last year, China became the world"s No. 1 exporter after being No. 9 in 1999, said Erxin Yao, president of OOCL USA, a major Chinese shipping line.

With a robust economy growing 8.7 percent last year, China had a trade deficit in January of $2.4 billion. ?The Ministry of Commerce indicated there will be quite a few months where China will have trade deficits,? said Yao, who recently moved to the United States from China.

He observed that the Chinese middle-class is growing rapidly and more people are moving from rural areas to metropolitan zones. Currently, 54 percent of the population lives in the country and 46 percent in big cities.

In the next 20 years, that will change to 70 percent of the population residing in urban areas and 30 percent in the countryside. It is expected that over the next 30 years, China will construct 30,000 to 50,000 new skyscrapers and millions of new housing units.
As the population becomes more urbanized and affluent, there will be a burgeoning demand for luxury goods, resources and products not made in China. ?I think westbound traffic [in cargo] will grow much faster than eastbound,? Yao said.

At the same time, China"s factories are moving inland to take advantage of cheaper labor because a shortage of workers in the coastal areas is leading to higher wages there. ?It is estimated that the Pearl River Delta [where many clothing factories are located] has a labor shortage of 1 million people,? he said. ?After Chinese New Year, many companies are offering their staff a big incentive to introduce people to join them.?


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