Figures published this week on the growth in the Chinese economy and the related US trade deficit are worth pondering for their implications on the logistics sector worldwide.

The surprise in the trade figures announced over the weekend was the fall of the deficit in February to $18.4 billion from $21.3 billion in January. The US deficit is back to where it was in mid 2006. Overall trade is declining even faster with US exports as well as imports shrinking.

The mood amongst Wall Street economists is that these figures indicate a slowing in the US economy, both in consumer spending, which is down by 0.5% year on year over the quarter, and lower capital expenditure. The trade deficit is also vulnerable to further devaluations in the US dollar.

At the same time figures published yesterday (Thurs 19 April) indicated that the Chinese economy was inflating, with first quarter growth over 11% and inflation climbing to 3.3% for the month and 2.7% for the quarter. This clearly raises the likelihood of further interest rates increases and restriction on credit and investment.

Although higher growth is apparent for the Euro-zone and Japan this is hardly likely to compensate for lower growth in such logistics hungry economies as China and the US.

It would seem logical for the economic conditions to have a depressing effect not only on trans-pacific container rates, but also airfreight rates out of China. Other routes may also be affected as capacity is shifted to other regions.

LSPs not directly trading with China are also likely to feel the effect of slower growth. For example the fall in container volumes into US West Coast ports is likely to impact the presently strong profits of the US railroads. The US domestic traffic is already feeling the effects of the property crash reflected in softer road freight rates and this could be amplified by a softening of container trades.

It is also probable that the big global logistics groups will see curbs on the growth of their lucrative freight forwarding businesses that have benefited so much from the China boom. It is worth looking out for knock-on effects of such a slowdown reflected in the corporate investment strategies of the larger operators. Not only might the time-scales of their investments in China be affected but also their ambitions to expand by acquisition businesses such as road freight in Europe and North America.

Source: Transport Intelligence

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