A close-up of the Asia-to-South America trade
Date: Thursday, May 9, 2019
Source: American Shipper
Container trade from Asia to ECSA has dwindled over the years amid growth on the Asia-to-WCSA trade, but the outlook for both appears positive now that Brazil, South America’s largest economy, is climbing out of a recession and China is boosting its ties across South America.
In 2017, 18.1% of Brazil’s imports came from China, according to the World Integrated Trade Solution, a trade database provided by the World Bank.
The chart below, built using data from the International Monetary Fund’s (IMF) latest World Economic Outlook released in April, illustrates that Brazil is beginning to climb out of its recession. Brazil’s GDP had declined year-over-year in both 2015 and 2016, when the country was in the midst of a deep recession, came in at annual growth of just 1.1% in both 2017 and 2018 and is expected to total growth of 2.1% for 2019.
Meanwhile, China is finding success in strengthening its ties with some of South America’s largest economies. At the end of April, Peru signed a memorandum of understanding with China in support of the BRI, a China-led development strategy that focuses on connectivity and cooperation, primarily between China and Eurasia, based on infrastructure, trade and investment.
Peru’s move came in the wake of Chile signing onto the initiative in November.
Chile aspires to become a bridge between the Latin American region and the Asia Pacific, Chile Minister of Foreign Affairs Roberto Ampuero explained in April. “Chile has favorable conditions to act as a bridge and as a port of entry between China and Latin America,” he said.
Chile President Sebastián Piñera said in April, “We want to transform Chile into a true business center for Chinese companies so that you can, from Chile, also reach the rest of Latin America.”
China and Chile signed two agreements to strengthen their bilateral relationship in April, Chile’s ministry of foreign affairs said in an April press release. These two agreements included a memorandum of understanding on trade defense, as well as the Joint Action Plan for 2019-2022, which covers 14 areas, including politics; economic-commercial; energy; agriculture; customs; transport and telecommunications; education; science, technology and innovation; astronomy; space; culture and tourism; geology and mining; maritime and Antarctic; and emergency management.
Cadem, a Chile-based polling firm, released results in April from a survey that showed that 77% of Chileans have a “good image” of China, 16 percentage points higher than the positive image they have today on the U.S. at just 61%.
Meanwhile, China and Argentina in Q4 2018 signed the Joint Action Plan 2019-2023, which will “guide bilateral exchanges and cooperation in all areas for the next five years,” according to a joint statement between the People’s Republic of China and the Argentine Republic. Two separate paths. While the container trade from Asia to the East Coast of South America (ECSA) has taken a dive over the years in terms of deployed capacity and container volumes, container trade from Asia to the West Coast of South America (WCSA) has increased, as illustrated in the two charts below, which were built using BlueWater Reporting’s Capacity Report, one of BlueWater Reporting’s various applications to monitor trends in the liner shipping industry.
Although four container loops currently serve the Asia-to-ECSA trade, while nine serve the Asia-to-WCSA trade, the Asia-to-ECSA loops are more dedicated to the trade than the Asia-to-WCSA loops.
Of the four services on the Asia-to-ECSA trade, with the exception of one service that makes a stop in South Africa, these four services strictly sail between Asia and ECSA.
Of the nine services on the Asia-to-WCSA trade, none strictly operate between these two trades, due to additional calls in the West Coast of North America, Central America and/or Oceania.
BlueWater Reporting’s Carrier/Trade Route Deployment Report shows that 10 container carriers deploy capacity from Asia to ECSA, while 13 deploy capacity from Asia to WCSA, with Maersk Line, the world’s largest ocean carrier, deploying the most capacity on both trades, as illustrated in the charts below.
Additionally, data provided by Container Trade Statistics in April shows that container volumes from Asia to ECSA in 2018 totaled just 1.29 million TEUs, down from 1.38 million TEUs in 2017, 2.59 million TEUs in 2016 and 2.86 million TEUs in 2015.
On the Asia-to-WCSA trade, container volumes totaled 2.29 million TEUs in 2018, up from 2.08 million TEUs in 2017, 1.93 million TEUs in 2016 and 1.55 million TEUs in 2015, according to data from Container Trade Statistics.
In terms of spot rates, the Shanghai Shipping Exchange’s Shanghai Containerized Freight Index illustrated that as of April 26, rates from Shanghai to Santos, Brazil totaled just $1,139 per TEU, down from $2,133 per TEU during the last week in April 2018. Although this is a drastic decline year-over-year, the Asia-to-ECSA trade is known for being rather volatile. The SCFI does not monitor rates from Asia to WCSA.
Regarding why the Asia-to-ECSA container trade has experienced a decline amid an increase on the Asia-to-WCSA trade over the years, Simon Heaney, senior manager of container research at Drewry, said in an emailed statement in April, “The ECSA trades are struggling to overcome the effects of severe local currency depreciations in 2018, while the WCSA markets with their more stable economies continue to flourish. As such, carriers are simply chasing the cargo in terms of where they add/subtract capacity.”
For the Asia-to-ECSA trade, “2018 was a year of two very different halves,” Heaney said, explaining that for the first six months of the year volumes had surged, while for the second six months of the year they had contracted.
As far as the outlook goes for the Asia-to-ECSA and -WCSA trades, Heaney said that for the Asia-to-ECSA trade, “Drewry expects the volume losses of the second half of 2018 to be reversed in 2019 as the economies in the region steady themselves,” while from Asia to WCSA, “trade should remain brisk, particularly with large foreign investment in the region and participation in China’s Belt and Road Initiative.”