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Sunday, July 22, 2018

Maritime Logistics Professional

Slowdown in China manufacturing means lines must bite the bullet – for now

Posted to Far East Maritime (by on May 24, 2011

At the moment, what’s good for the mainland is bad for the shipping industry.

China needs to curb its runaway inflation. In April, consumer price inflation was 5.3 percent and is expected to grow past 5.5 percent this month.

An alarmed Beijing is desperately trying to cool down the economy, and with the end of the stimulus measures put in place to boost growth through the financial crisis, a slowdown in the economy will happen in the second half (a slowdown with Chinese characteristics, you understand – economists expect the economy to grow at between 8 and 9 percent this year).

While a slowdown is great news for China and its battle with inflation, it is not so good for the shipping lines and the ports across the US and Europe whose growth depends directly on China exports. Indeed, much of the expansion plans in Europe and deepening of waterways in the US are a result of business plans that incorporate increasing container traffic from China.

Those are all long-term plans, however, and although the capacity ordering for 2013 and 2014 is reaching “what the **** …!” levels, of more concern is a slowdown in mainland manufacturing output this year. The world’s carriers are trying to fill too many ships with too little cargo.

China’s manufacturing slowed to a 10-month low this month, according to HSBC’s purchasing manager’s index (PMI) that was released a week before the mainland’s official version comes out.

HSBC reckons a contraction of new exports orders reflects supply-side disruptions caused by the Japan quake/tsunami/meltdown.

The bank’s co-head of Asian economics research Qu Hongbin said with an already high level of inventories, manufacturers continued to reduce stock levels (finished goods inventories fell to 48.5 in the PMI in May), leading to a further slowdown of output growth which hit its lowest level in 10-months at 50.9 (vs. 51.8 in April). This pushed the difference between new orders and finished goods inventories to a weaker level compared to the previous quarter.

There may be good news in the near future, but this will depend on whether there is a peak season. With inventories depleting at both ends of the supply chain, new orders will see factory output quickly ramping up and export goods heading for ships calling at China’s ports.

The challenge will be for carriers to manage their capacity in such a way that when the peak season spike happens, they will have vessels online and ready and not collecting barnacles in some quiet lay up.

 

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