Misplaced Hopes: Ocean Container Volume Disappoints Amid China Reopening Speculation - Sobel Network Shipping Co., Inc.

Misplaced Hopes: Ocean Container Volume Disappoints Amid China Reopening Speculation

Amid expectations of a significant boost in ocean container demand following the lifting of COVID restrictions and lockdown measures in China, the reality has proven to be quite different. Initial anticipation of a reopening-fueled surge in volumes has given way to disappointment as the expected upswing failed to materialize.

Analyzing the Inbound Ocean TEU Volume Index from China to the U.S., which compares 2023 volumes (white line) with data from the past four years, it becomes evident that the narrative of a container surge was unfounded. Despite the Chinese government’s announcement of further COVID restrictions and lockdowns in late March/early April 2022 (green line), leading some to predict a backlog and pent-up demand, our bookings data revealed a different story.
Contrary to assumptions, shippers were able to reroute volumes through the nearby port of Ningbo when access to the Port of Shanghai was hindered. Consequently, the decline in Shanghai bookings and container volumes was outweighed by the surge in volumes through Ningbo, driven by the rerouted Shanghai bookings.

As the year progressed, global container volumes began to decline, and the anticipated surge from China failed to materialize. The hope for a reopening boost and a potential soft landing for the global container market faded away. Instead, container volumes continued to weaken from China during a lackluster peak season, coinciding with emerging challenges such as inventory glut, weakened consumer demand, and an increasingly negative economic landscape.
This downward trend persisted into Q1 of 2023, signaling that the prospects of a reopening-driven container surge are all but extinguished. Although China’s share of U.S. imports saw a minor month-over-month increase in April to 37%, this modest bump is unlikely to sustain as several warning signals appear in Chinese government-reported economic data and commodity markets.

Of particular concern is the ongoing inventory destocking phase and its impact on China-to-U.S. container demand. This challenge was extensively discussed by the CEO and CFO of Maersk during their recent earnings call. Monitoring the average container volume per booking from China to the U.S., it becomes clear that importers have been reducing purchase order quantities, resulting in fewer TEU volumes per booking. The crucial indicator for a new replenishment cycle is for this ratio to return to an average of two TEUs per booking, yet it currently stands at its lowest level since early 2019 at 1.7 TEUs per booking.

The persistently low volume per booking reflects the weakness in U.S. import demand, as confirmed by our latest ocean container bookings data for U.S.-bound volumes departing from China. This weakness aligns with the contraction in the Caixin China General Manufacturing PMI in April, which fell unexpectedly to a four-month low. Furthermore, the correlation between the World Bank’s Pink Sheet Base Metals Index Data and China’s Producer Price Index indicates that deflationary pressures are intensifying, with falling commodity prices signaling worsening conditions for Chinese factories.

In April, Chinese imports also experienced an unexpected 7.9% year-over-year decline, reflecting weak consumer demand, lower commodity prices, and a stronger dollar. Container volumes from global ports destined for Chinese ports dropped over 20% since the beginning of March 2023. Notably, crude oil imports, copper purchases, and iron ore purchases all saw significant declines. The close relationship between Chinese imports and commodity prices further highlights the impact on global markets.