Latest Freight Data Confirms Alarming Slowdown In Global Trade

While the US stock market and economy continue to remain stubbornly immune to the ongoing trade war, the same can not be said for global trade as observed and measured by world freight shipping and volumes. According to the latest Goldman freight data, there has been a gradual slowing in global trade since 4Q17, and the July readings suggest an alarming continuation, and in some cases acceleration, of this trend.

The deceleration has closely tracked a tightening in global financial conditions, particularly evident in EM data, which in turn has largely been a manifestation of the ongoing escalation in trade tensions between the US and China.

Indeed, the implementation of the first round of US-China tariffs in early July may also have had an impact: US West Coast inbound port volumes were -1% in July (5% in 1H), while Chinese ports’ throughput growth slowed to 2% (6% in 1H), worse than implied by the close historical correlation with Chinese export orders. At the same time, air cargo growth at Europe’s key hubs turned negative (-2%) in July, with weakness cited on Asia-Europe. Looking forward, global manufacturing export orders in June/July were consistent with slightly positive, albeit slowing growth.

Breaking down freight by segment, here are some observations from a recent Goldman report:

  • Sea & air freight (volume growth positive, momentum negative): Freight datapoints have indicated a deceleration in growth since 4Q17. July data appears to have stabilised in Sea, with volumes growing c.3% in line with June, while Air freight growth has decelerated further; e.g. EU airport cargo -2% yoy from 1% in 1H, 7% in 2017.
  • Container: Active fleet growth continues to slow following announced capacity cuts (6% in August vs. 9% in 1H); Goldman expects further slowing to c.2% by mid-2019. While overcapacity in 1H limited carriers’ ability to pass on rising bunker and charter costs, there are now clear signs of supply rationalisation, as carriers begin to hand back capacity and new orders remain low.
  • Airlines (momentum weaker): While the market environment has remained broadly positive for EU-airlines ytd, growth in load factors has been slightly weaker recently. Forward capacity data suggests stable short-haul capacity trends in Europe, while long-haul supply growth is decelerating.
  • Infrastructure (volume growth positive, momentum stable): Airport (EU hub) traffic grew 4% in July, a slight deceleration from 6% growth in 1H18/2017/2016. Looking at scheduled airline seat capacity for the coming months suggests near-term traffic growth will remain at similar levels, albeit with growth slowing from high levels in Frankfurt, Spain and Portugal.
  • Commodities shipping (freight rates improving, momentum better): In dry bulk, rates have been slightly stronger owing to improved Asian demand and low supply growth of c.2%. Oil tanker rates have been weak over the past year but appear to have stabilized, and slowing fleet growth could be supportive of rate upside. LNG tanker rates have improved ytd from historical lows as higher Asian imports have boosted demand

Here is how global trade has slowed down recently in charts:

While freight volume growth remains steady c.3% in Sea, Air turned slightly negative in July for the first time in 2 years.

One of the factors cited for the slowdown in global manufacturing trade has been the tightening in financial conditions this year.

At the same time, even as the weaker Yuan has been supportive of East-West volumes...

... container rates have been on a declining path recently following capacity cuts.

Chinese port data was surprisingly weak in July

But it's not just China, as Asian hubs have been generally weaker

Transit through the Suez Canal trade hub has also slowed sharply in July, up just 4% vs 10% in Q2

US port throughput has also been weaker, with LA/LB imports down in July

Meanwhile, inventories have been building in the EU as sales growth weakens

Due to declining transit and higher fuel prices, containership vessel speeds have continued to slow.

 

After hitting historic lows recently, the idle fleet of charter owners and liners is starting to rise again.

 

More concerning is that the global shipping orderbook as a % of the total fleet is at record lows.

 

Looking at air freight, while the US remains in expansion territory (+3% air crago growth in July, in line with Q2)...

... EU cargo growth continues to decelerate, and hit -2% in July, after -1% in June.

Likewise, EU air traffic growth - while healthy - has been slowing.