US exports to SE Asia can't replace China loss

US exports to SE Asia can't replace China loss

Because China accounts for about 30 percent of US containerized exports to Asia, growing exports to other Asian nations did not compensate for the double-digit decline in the China market through the first six months of 2019. Photo credit: Shutterstock.com.

United States containerized exports to China plunged 21.5 percent in the first half of 2019 while exports to other Asian countries increased 11.8 percent, showing that shippers of key exports such as wastepaper, grains, plastics, and forest products are developing new markets for their products.

However, because China accounts for about 30 percent of US containerized exports to Asia, even the strong growth in shipments to other nations in the region could not overcome the double-digit decline in the China market in the first six months of 2019. Exports to all of Asia, including China, edged 0.8 percent lower year over year in H1, according to statistics compiled by PIERS, a JOC.com sister company within IHS Markit.

Declining shipments to China reflect the impact of that country’s counter-tariffs in the US-China trade war. The year-over-year comparisons could worsen in the months ahead as containerized exports to Asia normally peak in the winter-spring period. Declining exports to China could cause the already low westbound trans-Pacific freight rates to fall further.

According to the Shanghai Containerized Freight Index (SCFI) published in the JOC.com Shipping & Logistics Pricing Hub, the spot rate for shipping a FEU container from Los Angeles to Shanghai has fallen from $519 per FEU on April 4 to $396 on Sept. 26 .The spot rate for 10 consecutive months beginning in late September 2018 had hovered close to $500 per FEU.

Exports to China down in all top-five commodities

PIERS statistics list the top five US containerized exports to Asia as wood pulp and wastepaper, oilseeds and grain, plastics and plastic articles, wood and wood articles, and paper and paperboard. In every category, exports to China in the first half of 2019 were down year over year, while exports to the rest of Asia were higher.

The good news for US exporters is that they have diligently expanded nascent markets outside of China, especially in Southeast Asia, and carriers in the past year have expanded services between Southeast Asia and the US. The bad news is that China has such an outsized impact on US exports to the region that even the cumulative impact of increased exports to Southeast Asia and the Indian subcontinent will fall short of the volume of exports that has been lost to China in the past year.

“There is no replacement for a country of 1.4 billion people,” Mike Steenhoek, executive director of the Soy Transportation Coalition, told JOC.com.

Soybeans hardest hit US export commodity

Soybeans were among the hardest-hit US agricultural exports going back to the 25 percent tariffs that China levied last year. Brazil this past year rose to become the largest soybean producer in the world. In recent years, China has invested heavily in infrastructure in Brazil, which has improved the transportation of agricultural products from the interior to Brazilian ports. Those investments are paying off as soybean exporters in Brazil have already filled the void in China’s 2019 import needs when US exports to China were priced out of the market

Steenhoek said American farmers should experience a measure of relief this fall as China has agreed to increase purchases of US soybeans to accelerate progress in trade talks with the Trump administration. However, the additional shipments will be small compared with what China had been purchasing in recent years. According to PIERS, US containerized exports of all grains, including soybeans, declined 39.6 percent year over year in the first half of 2019, after falling 5.7 percent in the first half of 2018 vs 2017.

Steenhoek added that disruption in US soybean exports to China comes at a time when consumers there have a growing appetite for pork. This is harming exports of soybean meal, a feedstock for animals. Soybean oil is used to cook a number of Chinese dishes.

Wood (forest products) shipments in the first half of 2019 were also hit hard by China’s counter-tariffs, declining 37.6 percent year over year, according to PIERS. Although shipments to the rest of Asia increased 15.6 percent, China is so important in the region that total forest products shipments to all of Asia, including China, still dropped 27.8 percent.

“The China market had been critical to replacing Japan,” which used to be the largest market in Asia for forest products, said Hayden Swofford, independent administrator of the Pacific Northwest Asia Shippers Association (PNAS). PNAS’s members are largely in the forest products sector. China’s tariffs on US forest products have harmed the competitiveness of US shippers in relation to other Pacific Rim exporters such as New Zealand and Chile, he said.

Additionally, China has ramped up quality inspections of US shipments at its seaports. The increased inspections also harm the competitiveness of US exports compared with shipments from other nations, he said. Furthermore, in this uncertain environment, letters of credit are more difficult for US exporters to obtain, Swofford said.

Wastepaper exports dry up because of tariffs, environmental restrictions

Exports of wood pulp and wastepaper — the largest category of US containerized exports to Asia — have been declining for the past three years due in part to Chinese tariffs, but also the country’s “Green Fence” policy that seeks to limit importation of adulterated scrap products, while at the same time encouraging sourcing of recyclables domestically.

Exports to China of wastepaper and wood pulp in the first half of 2019 declined 16.9 percent after plunging 42.8 percent in the first six months of 2018 versus 2017, according to PIERS. US exporters have developed other markets in the region, with exports to the rest of Asia this year increasing 14.6 percent, after surging 60.2 percent in 2018 over 2017. However, China was such a large market that exports to all of Asia, including China, still dropped 4.8 percent in the first six months of 2019, after declining 24.1 percent in 2018.

“Wastepaper exporters are trying to find new homes for their product,” said Nick Halper, director of export for the Paper Tigers, a wastepaper exporter. While exporters are making gains in Southeast Asia and the Indian subcontinent, those markets are still small compared with China. For the foreseeable future, China does not appear to be a good market for wastepaper exporters, Halper said.

Production of resins, spurred on by an abundance of low-cost natural gas in the US Gulf states, is increasing strongly. US resins exports surged 34.7 percent in the first half of the year, according to PIERS. China is the largest market for US resins, but its imports from the US dropped in the first half of the year. Containerized resins exports to China declined 6 percent year over year, after dropping 12.2 percent in the first six months of 2018 versus 2017.

US resins exports to other countries in the region have surged so far this year: Malaysia was up 294.4 percent, Vietnam 290.6 percent, India 29.9 percent, Singapore 28.3 percent, Japan 28.7 percent, South Korea 25.7 percent, and Hong Kong 6.2 percent, according to PIERS. Nevertheless, China appears to be a declining market. 

Westbound freight rates moving lower

The US-China trade war could have an even greater impact on freight rates in the westbound trans-Pacific in the coming six months because the peak shipping season for US exports to Asia is tied largely to the agricultural and citrus harvests. The peak season for those products runs from November through March. Carriers in past years have been able to achieve small general rate increases in those months.

Earlier this year, after hovering close to $500 per FEU from Los Angeles to Shanghai, spot rates increased briefly to $523 on Jan. 17. Rates dropped back about $500 before a brief spike to $519 per FEU on April 4. Spot rates have been under downward pressure since then, dropping steadily to $396 per FEU on Sept. 26, according to the SCFI.

Shippers say freight costs have not been a hindrance to exports, and space on westbound vessels to most destinations in Asia has been plentiful. “There’s not too much to complain about in those areas,” Halper said. The only logistics issue that wastepaper exporters are dealing with is some difficulty in repositioning empty containers to their facilities because of declining imports from China, he said.

Contact Bill Mongelluzzo at bill.mongelluzzo@ihsmarkit.com and follow him on Twitter: @billmongelluzzo.