Data from the CPB Netherlands Bureau suggested that world trade had shrugged off rising shipping costs up to January, with real goods trade rising by 2.5% m/m. The outlook is broadly positive. But if the grounding of the huge container ship in the Suez Canal is not resolved soon, it could push freight rates even higher, causing a further rise in manufacturers’ costs and exacerbating temporary supply shortages.
- Data from the CPB Netherlands Bureau suggested that world trade had shrugged off rising shipping costs up to January, with real goods trade rising by 2.5% m/m. The outlook is broadly positive. But if the grounding of the huge container ship in the Suez Canal is not resolved soon, it could push freight rates even higher, causing a further rise in manufacturers’ costs and exacerbating temporary supply shortages.
- The 200,000 deadweight-tonne container ship – the Ever Given – became grounded in the Suez Canal on route from China to Rotterdam earlier this week. Given the sheer size of the vessel, experts have suggested that it could take days to weeks to free it, and to unclog the world’s second most important waterway through which roughly 10% of world trade passes each year.
- As long as the blockage is resolved soon, there will not be any lasting effects on the world economy. After all, ships can divert around Africa in the meantime, and the stoppage will presumably be made up for by heavier traffic once the block is removed.
- However, if it takes longer than a few days to move, it could exert further upward pressure on shipping costs and exacerbate goods shortages. The grounding of the Ever Given could hardly have come at a worse time – freight rates for routes from Asia to the Mediterranean have already trebled since mid-November, with shipping capacity struggling to keep up with demand for traded goods. (See Chart 1.) And the flash manufacturing PMIs for advanced economies in March suggested that delivery times had already lengthened further this month. (See Chart 2.)
- While there is clear and growing evidence of bottlenecks pushing up producers’ costs, there is little sign, so far at least, that they are restricting real demand for traded goods. Indeed, timely data suggest that world trade continued to rise over the first quarter. In Korea, export values edged up to a fresh two-year high in the first 20 days of March. (See Chart 3.)
- And March’s flash manufacturing PMI for DMs saw the new export orders index rise to a nine-year high of 55.4. Admittedly, the PMIs have overstated the strength of the recovery in trade for a while. (See Chart 4.) Nonetheless, the latest jump in export orders is an encouraging sign and suggests that any further increase in shipping costs associated with the disruption in the Suez Canal will do little to dent demand.
- In other news, the CPB Netherlands Bureau data showed that global goods trade kicked off 2021 strongly, shrugging off the surge in shipping costs that took place at the back end of last year. Trade rose by 2.5% m/m, leaving it 3.9% above its pre-virus level. (See Chart 5.) The regional breakdown showed that Asia was still an outperformer, as strong demand for consumer goods, and in particular electronics, continued to boost exports from the region. Meanwhile, the recovery in US exports continued to lag – exports are still 4% below their pre-virus level.
- Exports from the UK dropped by 18.2% in January. While there were a couple of other factors dragging on British trade flows, it is clear that Brexit was the key driver. Indeed, goods exports to the EU fell by 41.7% m/m while exports to countries outside the EU rose by 1.6% m/m. But this drop in UK trade didn’t register at the regional level. The regional breakdown of the real export data showed that exports from advanced economies other than the US, Japan, and the euro-zone were up by 1.6% in aggregate. (See Chart 6.) And, in any case, the number of cargo ships visiting UK ports has risen rapidly over the past month or so, suggesting that trade flows picked up rapidly in February.
- Further ahead, we expect the pressures on shipping capacity to ease. The recent surge in consumer spending on certain import-intensive products including electronics is unlikely to continue, and spending should revert to more normal patterns as easing restrictions allow domestic retail and services to reopen. Sales of electronics could even fall outright, implying weaker export growth from some Asian economies. But our forecast of a stronger-than-anticipated global recovery bodes well for world trade in aggregate.
Chart 1: Freightos Baltic Container Freight Rate Indices (1st January 2020 = 100)
Chart 2: Manufacturing PMI: Suppliers’ Delivery Times
Chart 3: Korea Exports
Chart 4: DM Mfg. PMI Export Orders & Real Exports
Chart 5: Global Real Trade
Chart 6: Regional Breakdown of Real Exports
Sources: Refinitiv, IHS Markit, Capital Economics
Gabriella Dickens, Global Economist, email@example.com