U.S. imports on the world’s biggest trading route are dropping for the first time in almost two years as consumer confidence weakens to the lowest level since the recession that ended in 2009.
Container volumes on the Asia-to-U.S. route fell 3.8 percent in the third quarter, the first decline since the last three months of 2009, according to Newark, New Jersey-based PIERS, a unit of UBM Global Trade that compiles cargo data. The slump probably continued last month, said Mario Moreno, a UBM economist. Rates for 40-foot containers to the West Coast, a benchmark, tumbled 24 percent this year, according to data from Clarkson Plc, the world’s biggest shipbroker.
“This is another piece of data that suggests growth will remain slow for the foreseeable future,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Consumers are still getting used to the idea that they are not going to make as much money or accumulate as much wealth as they thought they would a few years ago.”
Slumping rates for container lines from A.P. Moeller-Maersk A/S, the largest, to Neptune Orient Lines Ltd. are as much about capacity as trade. The fleet has expanded for two years to a record, according to Redhill, England-based IHS Fairplay. While cargoes to the U.S. West Coast from Asia are shrinking, volumes will probably expand 1.5 percent from 2010, signaling no return to the last recession, when they dropped 15 percent, London-based Clarkson estimates.
The cost for taking a 40-foot container to the U.S. West Coast from Shanghai fell to $1,500 last week from $1,962 at the end of 2010, Clarkson data show. About $700 of that is a fuel surcharge, according to Nov. 3 data from Copenhagen-based Maersk. Owners also lease space on their ships under longer-term contracts that may be higher than those for spot shipments.
Ships from Asia to Europe, the second-biggest trade route, are doing even worse, with rates of $613 per 20-foot box, Clarkson data show. Maersk estimates the fuel charges at $800, implying a loss of $187 on every container, according to London-based ACM/GFI, a broker of container derivatives used to bet on or hedge future transportation costs.
Owners of other types of freight transports are also suffering from gluts. Rates for capesizes, hauling about 80 percent of the world’s iron ore, averaged $13,601 a day so far this year, below the $20,000 needed to break even, according to the London-based Baltic Exchange, which publishes costs along more than 50 maritime routes.
The largest oil tankers will make about $15,000 a day this year, according to RS Platou Markets AS, an Oslo-based investment bank. Frontline Ltd., the biggest operator, says it needs $29,800 to cover costs.
Analysts expect the slump from Asia to the U.S. to end. Volumes to the West Coast will rise 6 percent to the equivalent of 14.1 million 20-foot containers next year, from 13.3 million this year, according to Clarkson. While that’s 24 percent more than in 2009, it would still be fewer than the 14.4 million in 2007, the data show. Trade back to Asia will also advance, climbing almost 8 percent to 8.3 million units in 2012, Clarkson estimates.
Worldwide container volumes will gain 8.4 percent to 164 million units next year, led by Asia, according to Clarkson. China’s economy will expand 8.6 percent in 2012, according to the median of 16 economist estimates compiled by Bloomberg. The U.S. will grow 2 percent, compared with 1.7 percent this year, the estimates show.
U.S. factory orders unexpectedly climbed 0.3 percent in September, the Commerce Department said Nov. 3. Retail sales rose in September by the most in seven months and purchases of new homes advanced for the first time in five months, it said in October. Standard & Poor’s 500 Index companies will probably report an 11 percent increase in sales this year, the biggest annual gain on record, according to more than 10,000 forecasts compiled by Bloomberg.
“Asia-to-U.S. trade should improve,” said Stanley Chen, an investor-relations manager at Hong Kong-based Orient Overseas International Ltd., which has about one in three of its ships on the route. “If you plot trade growth over the last few years, we see it’s following an upward trend.”
Container lines will be unprofitable this year and next, the first two consecutive years of losses, Andrew Lee, a Hong Kong-based analyst with Nomura Holdings Inc., wrote in a report Oct. 24. Shipping companies have been too slow in cutting services or idling vessels, he said.
Maersk, which gets almost 52 percent of its revenue from container shipping, will report net income of 17.55 billion kroner ($3.25 billion) this year, down from 26.45 billion kroner in 2010, according to the mean of 16 analyst estimates compiled by Bloomberg. Shares of the company fell 31 percent this year, compared with a 6.3 percent drop for the MSCI All-Country World Index of equities.
Neptune Orient will report a $228.5 million loss for 2011 after earning $460.9 million last year, according to 20 estimates. The Singapore-based company gets 87 percent of revenue from containers, and its shares have slid 50 percent.
The glut of carriers is unlikely to end any time soon. Vessels on order at shipyards are equal to 30 percent of the existing fleet, and most will probably be deployed on the routes from Asia to the U.S. and Europe, Nomura’s Lee estimates. Global box rates may decline another 2.6 percent next year, he wrote.
Growth in world trade will expand 5.8 percent next year, compared with 7.5 percent in 2010, the International Monetary Fund estimates, and about 90 percent moves by sea, according to the Round Table of International Shipping Associations.
Improving economic figures have yet to be reflected in U.S. consumer confidence, which sank in the final week of October to the lowest level since the first quarter of 2009, the Bloomberg Consumer Comfort Index showed. Unemployment is running at 9 percent, compared with 5 percent in December 2007, the start of an 18-month recession that was the longest since a 43-month slump that ended in 1933, according to the National Bureau of Economic Research.
Home prices in 20 U.S. cities tracked by the S&P/Case-Shiller index fell every month starting in October last year. The drop, along with unemployment and weaker confidence, is sapping demand for consumer goods, said Moreno, the UBM economist. Furniture is the single largest item brought into the U.S. by container, he said. Boxes from Asia accounted for 75 percent of total container trade into the country last year.
“When home sales are weak or falling, then opportunities for consumption of furniture and other home goods decrease,” said Newark-based Moreno. “The U.S. economy isn’t creating jobs fast enough, which only adds to the problem.”