The Flanders-China Chamber of Commerce organized a webinar focusing on “Navigating turbulent times in the freight industry” on 8 February 2023.
Ms Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, introduced the topic of the webinar and the speakers. The disruptive events that caused record-high ocean shipping rates are coming to an end and rates are swinging back. But following the disruption, what is happening in the shipping market and what can we expect in the coming years? How low will container rates go, as a shipper what can you do to benefit from the decreasing prices, and is the pricing crisis really over? The year 2022 has been a turbulent one and 2023 will certainly be very different. The biggest change is that since January 8 China lifted all travel restrictions so there is no quarantine anymore when you enter China and also for traveling in China there are no restrictions anymore. Business leaders can meet each other and build up the relationship and trust. Many investments have been put on hold as they could not visit the location and meet business partners, so the reopening of China's economy will certainly increase trade and investment between both sides. Last week we already received the first Chinese delegation which we introduced to our member companies.
EU investments in China grew for the first time in four years by a staggering 92% year-on-year in 2022. The Chinese government identified stabilizing economic growth as one of China's top priorities this year. Looking at the longer term, Morgan Stanley predicted that the reopening would allow China to achieve economic growth of 5% in 2023 compared to 3% growth in 2022.
Mr Didier Duponselle, Business Unit Director Warehousing and On-site Logistics, Ahlers, gave a presentation on “Navigating turbulent times in the freight industry”. Ahlers was founded in 1909 in the Port of Antwerp and is 3rd generation family owned. It delivers high-quality services to enable its customers to focus on their core business. The company offers tailor-made solutions beyond logistics in four areas: end-to-end supply chain solutions; secured transportation of high-value cargo; trade facilitation and after-sales services; and complex project logistics. Ahlers has offices in many countries, including in China's Shanghai and Guangzhou.
The last few years we have experienced disruption in the markets, affecting many of us. More than 1,200 vessels call on Shanghai port every day, which is an incredible number. Compared to last year, delays have been reduced, so the picture is much better today. The trade is going a lot smoother also on the ocean-bound leg. Port congestion is an indicator of how trade is going. Ninety percent of trading companies were affected in their supply chains and 60% of them have changed their supply chain or procurement, and 10% have structurally changed their supply chains, such as re-shoring or completely changing their production set-up. This is a very high percentage, which is normally 1%, giving you an idea of the disruption we have experienced. Lidl for example has decided to set up their own container shipping company, operated by Tailwind Shipping Lines. This is a vertical integration of their supply chain.
Mr Duponselle introduced the factors influencing the prices on the spot market. The four biggest factors are inflation and the impact of spending behavior; carrier capacity and pricing strategy; container availability; and geopolitical impacts and fuel. In the short and medium term, factors positively influencing the current spot market are Covid-19 being endemic or not; inflation and impact on spending behavior; and carrier capacity and pricing strategy. A worsening factor is the geopolitical impacts and fuel prices. On Asia-Europe routes rates have gone down by 86% on a yearly basis and by 50% in the other direction. The price of a container going from Shanghai to Europe has dropped from USD14,000 to about USD3,300, which is good for international trade.
Looking at future outlook indicators, on the demand side, world GDP evolution is the key driver, with 33% of the world economy expected to go into recession, but world GDP is still expected to grow. The IMF expects China to face a difficult first quarter. On the supply side, an estimated 7.5% capacity is to be delivered in 2023. There are also more blank sailings, especially from China to Northern Europe.
How low the rates will go will continue to depend from region to region and trade flow to trade flow. Where much margin is made, new capacity will be brought in, and where it is deteriorating, capacity will be taken out. From the price point of view, we are going for a smooth landing. Service expectations are improving, but temporary and local delays will remain. As an exporter or importer, try to break up your contract if you have long-term agreements at the higher rates, and try to negotiate a link with the market rates.
Mr Arno Coster, Commercial Director, Trade Facilitation, Ahlers, talked about “Business Process Outsourcing in complex markets”. He has more than 12 years of experience in international trade, bringing business from West to East. Ahlers China was founded in 1993 and has 12 employees. Ahlers started to offer importer/exporter of record services since 2021, covering your local legal entity requirements. When importing products there should be a label in Chinese on the product. Ahlers can also assist with financing, accounting and auditing.
Demand for western brands is growing in China along with the number of people who are able to spend. China's middle class has been among the fastest growing in the world and the country has kept inflation at a worldwide low of 2% in 2022. Asian markets in general are also growing a lot. About 40% of customers favor products that are readily available and expect fast delivery. Products to help you live healthy are still very popular. There are three main online retailers: Alibaba, Jingdong and Pinduoduo. Through the Ahlers set-up it is not necessary to have a local entity. We act on your behalf and offer you overview and control over the business through our trade facilitation services.
The third speaker, Mr Jan Van der Borght, Port Representative, Port of Antwerp-Bruges, spoke about how a world port like Antwerp-Bruges can adapt to respond to the changing maritime supply chain. He has been living in China for more than 15 years. Times have been quite turbulent, including geopolitics, the impact of Covid on the economy and the zealous domestic politics with more emphasis on ideology. U.S.-China relations became tense and contentious and rivalry is increasing. There is a shift from transactional issues to values, leading to more decoupling. The U.S. is perceiving China as a threat so they cannot be soft, while in China we see growing nationalism and pride.
Now that China is open again, we can expect a charm offensive, reconnecting to the world and strong resilience in 2023. China is aiming for a GDP growth of greater than 5% and China's GDP now approaches 20% of world GDP. Reopening has been extremely fast. There was unrest after more than a year of very strict measures, carried by the population in the beginning, but later turning into increasing malcontent. The wave of infection spread very fast, but it was over in two to three weeks and everybody is back to work. The resilience of the Chinese is remarkable. In the third and fourth quarter there is going to be a very strong relaunch. During the past year, family incomes have been under a lot of pressure. Many businesses, especially hotels, restaurants and other businesses, didn't make it. Now people are very eager to get back to work. We are going to see a dynamic that we have never seen before.
Significant uncertainties include the possibility of a global economic recession. A pause in the Russia-Ukraine conflict should help. Fortunately the Chinese mainland economy is no longer dependent on exports as the main driver of growth is domestic demand, which is largely unaffected by external disturbances. China-U.S. strategic competition will become the new normal with continuing “wars” in trade, investment and technology. Some decoupling of the Chinese and U.S. economies is inevitable, but the impact on both will be relatively marginal. The continuing U.S. tariffs on imports from China have had only a small effect on the Chinese economy. U.S. controls on exports of technology could slow down some sectors.
Another uncertainty is demographic developments. In the short and medium term the problems of a potential labor shortage can be mitigated, but in the long term China should try to maintain a stable population. What are the implications for multinationals? There remains a push to retain and encourage multinational investment with more supportive and substantial incentives. Multinationals are still committed to continuing operations and further investing in China. China remains the largest economy worldwide and a growing market. We do see a geographical diversification of supply chains to build resilience, but the question is how long this is going to last. The Chinese domestic market remains very robust.
Demand for container transport has been under pressure. We can expect an increase in blank sailings, reduced regularity in departures and more consolidated volumes. There is a retreat from all time highs in the global container trade. Far East-European rates are under pressure. Demand growth will be flat at best. Carriers have made vast profits in the past period. The order book of ships is a bit worrying as future capacity is increasing combined with a lower demand. The big question is whether there will be new rate wars due to overcapacity. Evergreen has 49 vessels under construction and MSC has the largest order book with 133 ships. Rail transport has become very popular due to high sea rates but this is now changing again. Rail is an alternative for air freight but never for sea freight. In the second half of the year we are going to see a big boost in the Chinese market.
A Q&A session concluded the webinar.
