While the latest signs are that capacity constraints in global shipping are continuing to bite, we expect these to subside over the course of the year. Indeed, as vaccine rollouts allow economies to reopen, the pace of the recovery in goods trade should slow as consumer demand shifts away from goods and back towards services. In older news, real world goods trade continued to rebound in December.
- While the latest signs are that capacity constraints in global shipping are continuing to bite, we expect these to subside over the course of the year. Indeed, as vaccine rollouts allow economies to reopen, the pace of the recovery in goods trade should slow as consumer demand shifts away from goods and back towards services. In older news, real world goods trade continued to rebound in December.
- Trade data for December published yesterday by the CPB Netherlands Bureau have been overtaken by events. But for what they’re worth, they showed that real global goods trade shrugged off surging shipping costs, rising by a further 0.6% at the end of last year. This left it 1.3% above its pre-virus level. (See Chart 1.) The regional breakdown showed that Asia continued to be the strongest performing region for exports, while exports from developed economies, except for Japan, remained below pre-virus levels. The product breakdown for developed economies showed that nominal trade in “other transport goods” (principally aircraft) fell by almost 7% on the month, leaving it a third below its pre-virus level – making it the worst performing category of traded goods.
- More recent evidence suggests that global trade continued to rebound at the start of the year. Hard data from Korea for the first 20 days of February showed that exports were up by 29.2% y/y – a strong performance even accounting for the seasonal distortions from Lunar New Year. And February’s DM manufacturing PMI showed a further jump in the new export orders index, to over a three-year high of 52.4. On the face of it, at least, this is consistent with growth in developed economy real goods exports of around 4% y/y, though the surveys have overstated the strength of the rebound so far. (See Chart 2.)
- While it seems that trade continued to recover at the start of 2021, the surveys are also consistent with the fact that shipping capacity is struggling to keep up with demand. The suppliers’ delivery times index of the manufacturing PMIs dropped sharply again in the US and Europe in February, implying that goods are taking even longer to be delivered. (See Chart 3.) What’s more, ports remain heavily congested, and the cost of container shipping remains elevated – particularly for routes from Asia to Europe. (See Chart 4.)
- In the early stages of the pandemic, supply problems were largely the result of restrictions on industrial activity. But more recently supply chain problems probably reflect the strong recovery in demand for consumer goods.
- Indeed, freight traffic is already operating close to or above pre-virus levels. According to the RWI container throughput index, sea freight passing through the world’s major ports was already 6.5% above January 2020 levels. There have been suggestions that ongoing restrictions to international leisure travel might limit the recovery in air freight, much of which is carried in the belly of passenger jets. But the level of global air cargo was only just below its pre-virus level at the end of last year, as passenger craft have been repurposed for commercial deliveries.
- While rising shipping costs seem to be exerting some upward pressure on prices, there is little evidence that they have weighed on external demand so far. Looking ahead, we suspect that these costs will ease back over the course of 2021. We expect vaccine rollouts to allow economies to reopen, causing global consumption to rebalance away from goods and back towards services, alleviating capacity constraints in the industry.
Chart 2: DM Mfg. PMI Export Orders & Real Exports
Chart 3: Manufacturing PMI: Suppliers’ Delivery Times
Chart 4: Freightos Baltic Container Freight Rate Indices
Sources: Refinitiv, IHS Markit, Capital Economics