What the shipping market tells us about the air freight and export market

By J Saft
July 13, 2010

An interesting contrast is shaping up in global trade, where some indicators of the movement of raw materials are crashing even as exports from China and air traffic continue to show outstanding strength.

Depending on your reading of the data you could decide that the threat of a double-dip recession is overblown or, perhaps more simply, not a threat but a promise.

First, the good news, at least if you are exposed to Chinese exporters. China said last week that export sales rose a stunning 43.9 percent in June from the year before, taking the trade surplus to $20 billion, its highest in eight months.

Exports to the European Union and the U.S. both rose by 40 percent in the month, somewhat confounding concerns about Europe’s woes and the ongoing effects of a weak and jobless recovery in America.

Exports to faster-growing emerging markets were even stronger: up 84 percent to Russia and 59 percent to India.

You have to think that knowledge of how strong these numbers would be contributed to China’s decision to make a much ballyhooed move to end the peg of its yuan to the U.S. dollar. Even so, and putting aside the ways in which these numbers argue for increased trade tensions, it seems likely that either China is kicking the stuffing out of its competitors or there is, or was, some pretty good final demand, somewhere, at some point.

Adding to this is very strong data released in late June from the International Air Transport Association, which showed a 34 percent jump in freight demand and an 11.7 percent rise in passenger traffic in May as compared to the year before.

That means both passenger and freight air traffic is now higher than it was before the financial crisis hit. Capacity utilization, another indicator of demand, is now at a record for cargo planes.

Elsewhere there are plenty of indicators that suggest that China’s June numbers reflect demand that perhaps was strong three or four months ago, but looks to be cooling as the year wears on.

For one thing, if viewed on a seasonally adjusted basis the rise in exports was not as strong as earlier in the year. This may reflect the dwindling effects of an inventory restocking in the U.S. and Europe.

It is also worth noting that the Baltic Dry Index has more than halved since late May. The Baltic Dry, an indicator of shipping rates, is famously difficult to interpret, as it can be both a good leading indicator of the shipment of the kinds of raw materials that are in demand as economic growth is rising, but it can also be driven by ships coming on or off the market. Because ships are slow, cumbersome and take a long time to build, shipping rates can dive or skyrocket on rather small mismatches in supply and demand.

Still, taken together with a fall in commodity prices, the shipping news seems to be telling us something about the economy as well as, possibly, about shipping. The Thomson Reuters/Jefferies CRB index of 19 raw materials is down more than 10 percent so far this year and the “capesize” part of the index, which measures shipping rates for the largest ships used to transport things like iron ore and coal, is down more than 60 percent.

“Ongoing falls in the Baltic Dry Index into July suggest Chinese hard commodity demand, for iron ore and coal in particular, should continue to weaken this month. By contrast, we are yet to see a material slowdown in Chinese crude oil imports, with import volumes 50 percent above their pre-crisis levels. Copper imports have also maintained their rate of growth and stand 100 percent above pre-crisis levels. Given the global export environment, and Chinese growth developments, it is difficult to see how this pace of demand growth can be sustained,” according to Melissa Kidd, an analyst at Lombard Street Research.

It may just be that the shipping market is telling us where the air freight and export market will be in several months time. The air freight industry is tilted towards higher-valued finished goods, while the cheap bulk stuff that gets turned into tomorrow’s export goes by sea.

In the end final demand has to come from somewhere. Europe as a candidate is not a strong one, while shrinking consumer credit data from the U.S. only serves to reinforce the fact that American households have only limited capacity to serve as everyone’s favorite buyer. Russia, India and Brazil may grow, but are not big enough to outweigh weak demand from both sides of the Atlantic.

Give it two or three months and the trade data may look very different, and the double-dip discussion may have turned from debate to recrimination.


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Gatt is general agreement on tariff and trade.Kagaroo hop is G8 air sea land trade while G8 foreign exchange wealth via conversion monopoly just concluded.Somali Banks Economy should be in the hands of 100% Somali Muslim Country.Why Christians in the Somalia India in Afghanistan Central Asia OIC Banks?Said the Rabbi (non Jewish Essential christian and Muslim priests):”you did not know where the rocks(for crossing the water puddle)were”.Like Somali Banks Economy should be in the hands of 100% Somali Muslim Country OIC Muslim Banks and economy should be in the hands of Muslim.How is it Canada or G8 controls Opec and saudis?Why Christians in the Somalia India in Afghanistan Central Asia OIC Banks? Amid armada of pleasure boats in the entire Nations of mediterrean red sea gulf of Aqaba of Muslim lands in Millions of Sq.Km with a Billion Muslim in the region.Neither Bani Israel nor allied have air space to enter Israel Afghanistan.If Slavery of Muslims have been created then Muslims have a right to Impose levy or sea land air flight over land usage.Egypt had been been enacted with creation of Bani Israel as well as Quwwat Viola Nasserite Suez canal Toll charges Levy.Viola be ready to Toll charges for over flight or round and round (longer route)?

Posted by Clarkson | Report as abusive

China is all smile with train freight(from across China) linked to Islamababd(pakistan).Already Islamabad_ Istanbul train freight exist(though it need speeding effort).Turkey is linked to Europe and China is linked by Train to Russia.USA Canada EU must project and figure out how Train sea air freight business of the future will work.

Posted by Clarkson | Report as abusive

thanks, Jim, and Reuters, for this article..

Posted by gramps | Report as abusive

[…] What the shipping market tells us about the air freight and export market | Analysis & Opinion – Answer: nothing. But there’s a story in here somewhere. It seems that air freight, that carries finished goods, is a booming business, but shipping rates, traditionally a proxy for raw materials demand, is down and down hard. Read carefully about how wildly that shipping index – the wonderfully named Baltic Dry (with a twist) – can swing based on the creation or destruction of ships and other arcane factors. ======= 48 Hour Film Project Starts . . . | Providence Daily Dose – By the time you read this, it will all be over. It’s a great idea. Announce a set of parameters – a prop, a plot device – and give teams 48 hours to produce a short film. The approach is similar to the Maker-style weekend build contests. Software developer, entrepreneurs and a host of other kinds of people have found that a very short deadline can produce unexpected and wonderful results. Plus, a lot of other stuff that looks like it was thrown together in a couple of days. […]

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