Sunny peak season expected as China exports strengthen

Sunny peak season expected as China exports strengthen

A series of positive factors have lined up in China’s export space, not least the double-digit growth in June, raising expectations that the recent strong performance of air and ocean cargo volumes will extend into a solid peak season.

China’s exports in June rose 11.4 percent year-over-year, pushing up ocean container trade between Asia and Europe by 6.1 percent and Asia-U.S. trade by almost 5.9 percent, according to Citi Research. Combined air cargo carried by Cathay Pacific, Singapore Airlines, and Air China, measured in freight tonne kilometers, improved by 7.4 percent.

But other factors contributing to expectations of a sunny peak season include the improving economic outlook for the European Union and rising U.S. housing starts and sales, a catalyst for South China exports. Furniture and white goods account for an estimated 20 percent of the throughput through Pearl River Delta ports.

A further positive market indicator was China’s official purchasing managers’ index (PMI), which rose to a six-month high of 51 in June, while HSBC’s PMI for the same period hit 50.7 points, the first time in six months it has been in expansion territory. This signifies increased manufacturing output that is supported by growing export volumes being recorded by air and ocean carriers, and terminals.

For instance, Hong Kong’s Orient Overseas Container Line (OOCL) saw its trans-Pacific volumes rise by 6.3 percent in the first half to 645,000 20-foot containers, although weak rates were a drag on revenue with year-over-year profit at 1.3 percent on the trade route. Load factors at OOCL saw a significant improvement, rising 5 percent year-over-year in line with the management’s goal to maintain an optimal load factor in 2014.

“While there has been an increase in cargo volume in the trans-Pacific trade, we are not sure if that has something to do with customers shipping early to avoid the risk of any labor issue due to the contract negotiation with ILWU,” said Stephen Ng, OOCL director of trades.

JOC economist Mario Moreno said labor contract negotiations between the International Longshore and Warehouse Union (ILWU) and employers skewed second-quarter import volumes, but U.S. imports are still en route to reach a new peak volume this year of 19 million TEUs.

“For the second quarter of the year, imports expanded 6.6 percent year over year, 1.3 percent over forecast. I estimate about 45,000 inbound TEUs were pushed forward from the third to the second quarter,” Moreno said.

In a note to investors, Citi Research analysts said export growth will be one of the bright spots in the second half and the port sector will be a key beneficiary of a foreign trade rebound.

In the air cargo sector, the Association of Asia Pacific Airlines (AAPA) director general Andrew Herdman said positive consumer and business sentiment in major developed economies have seen cargo demand continue to expand in June for the 16 regional carriers it represents.

During the first half, air freight demand grew by 4.6 percent, underpinned by a long-awaited pick-up in global trade activities.

The average international load factor grew by 0.8 percentage points to 66.1 percent in June, in the second consecutive month of growth, a circumstance taht has not been seen for some time. In freight tonne kilometers, air cargo demand grew 4.7 percent in June.

“Overall demand is expected to be positive, supported by continued growth in regional economies and further improvement in the US and European economies,” Herdman said. But he warned the Asian carriers to keep an eye on costs and to manage capacity as competitive pressures remain intense.

Contact Greg Knowler at gknowler@joc.com and follow him on Twitter: @greg_knowler.