By Fotini Tseroni
June 30, 2020
During the recent MarineTraffic webinar, held in association with Posidonia and Navigate PR, we dived into the global trade market to discuss what containerships will face going forward.
Lori Ann Larocco, the author of “Containerships don’t lie” and Senior Editor at CNBC, Jan Hoffmann, the Chief of the Trade Logistics Branch at UNCTAD, Gene Seroka, Executive Director of the Port of Los Angeles, Lars Ostergaard Nielsen, Regional CEO at Maersk and Judah Levine, Researcher at Freightos, shared their unique perspectives on what's happening in the market at the moment.
The session was moderated by Bill Lines, Director at Navigate PR.
So, what are box movements telling us about the global trade market? How has the COVID-19 outbreak impacted marine traffic?
Bill Lines: Hello everybody, and welcome to the second MarineTraffic webinar held in collaboration with Posidonia. Today, we're looking at the container shipping industry and trying to make some sense of the stats. My name is Bill Lines, and I'm your moderator for today's session.
I'm delighted to welcome our international panel, there's a group of experts who are going to give their perspective on what's happening both on the ground and at sea at the moment. But before I do the introductions, I just want to show you a little screenshot from MarineTraffic. This [screenshot] shows you all the world's container ships as of I think last night, these are all about ships moving goods, manufactured goods, fruit and vegetables, PPE, medicines, some of these ships will be full, some will be empty, some will be laid up and idling, some will be loading.
But it's about a global lane at work, which is keeping economies connected and supply chains moving. And without it, we shouldn't forget the world would be a very, very different place. It's also very easy to forget that these dots on the screen are actually [ships where]...there are people on them, there are seafarers onboard these ships. And lots of these seafarers should actually be at home with their families after months and months at sea. But the COVID-19 travel restrictions has meant that many haven't been relieved of what should have been the end of their tour. So, we'll be discussing a little bit about what this could mean for trade if this issue isn't resolved soon.
But let me introduce you to our panelists. We have Lori Ann Larocco. She's an editor with CNBC Business News, and also someone who seems to be absolutely fascinated by global shipping and what it tells us about global trade policies. Her most recent book, "Trade War Containers Don't Lie Navigating the Bluster," looks at the impact that U.S. trade policies and tariffs have had on container movements. I'm hoping that Lori, you'll be able to give us some perspectives into what changing trade patterns and flows mean for the U.S. economy, for the international economy, and what's really happening on the ground at the moment and give us some actual insights.
I'm delighted to welcome Dr. Jan Hoffmann, who is chief of UNCTAD's Trade Logistics Branch. For those of you who don't know UNCTAD, it's the Geneva-based United Nations organisation that helps keep the world connected. It supports countries across the global economy through technical assistance and analysis. Dr. Hoffmann has worked with UNCTAD, I think, for over 17 years, and he's a highly respected analyst.
We're also pleased to introduce Gene Seroka who's the executive director of the Port of Los Angeles, which is one of the U.S.'s key ports and the gateway for international trade. As well as handling dry bulk, tankers, railroad, cruise ships, it's actually America's busiest container port, and last year moved over 9 million TEU. Before his appointment at Los Angeles, Gene spent many years with APL, American President Lines, a large ocean carrier, and today runs one of the world's busiest ports and his new role is also chief logistics officer for Los Angeles. This position was created this March by the mayor, I think, as the city's reaction to COVID-19. So again, he'll be able to give us a unique perspective on what's happening on the ground at the moment. And I'm really looking forward to hearing his current take on what's happening.
We also have Lars Ostergaard Nielsen, who's joining us from Panama, where he's Maersk's regional CEO for Latin America and the Caribbean. He spent his whole career with Maersk since he joined the company in the early 1990s. His career has taken him all around the world. He's had stints in Sri Lanka, Philippines, UAE, Shanghai, Istanbul to name but a few. But he'll be giving us the perspective of a company which shifts around 12 million-plus containers a year. It'll be very, very interesting to hear what he has to say.
Last but not least, Judah Levine, who's research lead at Freightos, and he's joining us from Israel. Freightos a freight marketplace used by retailers and manufacturers to get air, ocean, and trucking rate quotes. I think Judah is gonna have a pretty unique perspective on the impact the crisis is having on container shipping. He's an experienced market researcher, and he has a Ph.D. from the University of Chicago.
But it's not just about the experts. It's about you, the audience, as well. So, please do use the chat function. If you look on the right of the screen, I think you'll see a chat function. Those messages will come into the moderator, so we can try and select a few of them. I can't promise we'll answer all of them. There are quite a few of you on this call. But if you don't get a chance to see everything, catch everything people are saying, we will be sending a link around at the end of this so you can watch the session again. To set the scene, let me hand over to Jan Hoffmann, who's gonna talk us through the latest global trade stats. Jan. Jan, you're going to need to switch your audio on.
Jan Hoffmann: Welcome, thank you so much. Very happy to be here. Yeah, three, four slides to set the scene. Some of you may have seen this slide already last week when my UNCTAD colleague, Young Chun, spoke about commodities. So that's an UNCTAD forecast/nowcast of how bad it is really, that's the trade contraction based on data. Now what data is this based on? Some of this data is actually shipping data because trade and GDP and economic data is not yet available. Statistics always come with a certain delay. So, what do we do to get the best picture of what the economy and trade looks like? Among other things, like Lori's book "Containers Don't Lie", we look at the speed of ships, or we look at how many ships arrive and leave and do this type of nowcast and what I'm sharing here, it's really under construction. And just the first picture here shows how the forecast changes every week. That's the main message.
Then below, when we want to forecast future maritime trade, which many in the audience are interested in, [you] want to know what will be the seaborne trade demand by commodity, by oil, by dry, by containers next year and two years, then we again try to look at elasticities. So, we forecast GDP, it's a bit of a circular thing. I just wanted to share the linkage because this webinar is about forecasts, it's difficult. That's the main message here. But whatever we can do, I share. But I also told you to be careful, this forecast changes everything.
So what is the current data? And here I'm sharing with you the map that you showed earlier, you see four main vessel types, the thickest one I've put in red because that's our topic today, it's containers. And the thin, straight, red line is where we were last year at the same time.
All segments are below last year, passengers are worse. Blue, the oil, has also gone down and containers are relatively not quite as bad. And if you want to see how this looks like in your country, here’s a video we had prepared. Right, so you'll now be seeing a moving map. And we are quite proud of this map.
So, this is MarineTraffic AIS data. And you can see three things in one single map. You see first the relative size of the countries, circle is how many container ships arrive every week. Then you see how it is going - it's growing, going up, going down. And, certainly, you see by the colour whether it is more or less than last year.
That's really up to last week. Yeah, there we are, all of it. You see most countries started in green, and then most countries ended in red - China's already back in green. One last chart I wanted to share, this is now the fleet deployment, the schedule. I've taken this from NBS transmotor. I've taken the leading economies from different regions, most were still good in the first quarter and are now down in the second quarter. And, yeah, even those that are positive, there's for most of them a lower growth in the second quarter. So, this is what we had discussed and agreed with Bill and the colleagues; to set the scene, to set the links. We want to forecast, it's about the future, containers don't lie, they tell something about the future. But then the container carriers themselves would like to know, what will be their future? So we start with today's data and do some nowcast and forecast and that's the latest victory. Thank you, Bill.
Bill Lines: Thank you, Jan. I'm now gonna hand over to Judah, who is going to look at what the carrier's response has been to this drop off on trade and how it's impacted freight rates. Judah.
Judah Levine: Thank you. As Jan said, the topic is to understand where we're going. But my job for the next few minutes is to kind of present what's been the impact of the pandemic on containerised freight so far. So, we can try and extrapolate where things might be going or what trends are driving the data that we're seeing now.
The story of the COVID-19 impact on freight and logistics is really a story of swings, or disruptions in supply and demand.
So this graph is from our Freightos Baltic Index, the FBX, which is an index of containerised ocean freight spot rates. And the graph we're looking at is the example for the price to ship a 40-foot container from China or Asia to the U.S. West Coast since the start of the year. Though, Asia, Europe lanes behave in a similar way to this chart we're seeing. Generally, we look at ocean rates for a good reflection of the demand for goods out of China. And as we'll see, in the current climate, it can also represent the supply side of ocean logistics or the level of ocean capacity that's available on the market that Jan actually touched on.
Starting in January, container rates or prices increased, showing demand was high pre-Chinese New Year, as importers generally rush to get shipments out of China before factories shut down for the holiday week. Then the outbreak and shutdown hit in China. We see that reflected in rates plateauing and then falling as China was shut down in manufacturing, or the supply of goods was disrupted or put on pause through February.
But once manufacturing and China picked up by mid-March, we see a spike in prices, which seemed like a big spike at the time, 15% in the last 2 weeks of March, and that showed that U.S. importers before COVID-19 had really started impacting the U.S. directly were rushing to fulfill that demand of orders that we weren't able to get out of China during the shutdown.
Into early April, as COVID-19 increasingly shut down the U.S. economy, we see that spike slow and then level off. This is because, as the U.S. itself began being affected by the virus and shutting down, U.S. importers started canceling orders, not making new orders, or canceling orders that they had made during China's rebound as U.S. consumer demand was dropping fast during the shutdown. So, the expectation could have been that after that, with this global and U.S. consumer demand dropping, that ocean rates would drop as well through this lack of demand that they might drop through Q2. But instead, we can see that in April rates pretty much had leveled. In May, prices declined a bit, they were even above that pre-Chinese New Year level. And so far in June, rates have really spiked more than 60% since the end of May. Rates are even higher than they were in the fall of 2008 in the lead-up to the introduction of tariffs during the trade war.
This is all to say how remarkable really the situation is right now because generally elevated or spiking rates reflect healthier, surging demand for freight. We saw a pre-trade war we see before each Chinese New Year, but we're in the midst of a global pandemic, and we're in a low-demand environment, and ocean volumes have been hard hit as I'm sure we're gonna see. So the question is, what's going on?
So the reason that we've seen these elevated and level prices, and now these spiking rates in June, is that as demand for Chinese imports dropped because of the shutdown in the U.S. and Europe, ocean carriers begin cancelling or blanking a record number of sailings to reduce ocean freight capacity. Match it with this low demand for freight in order to prevent losses as much as possible by the carriers by cutting their costs, and also preserve their revenue by keeping ocean prices from collapsing. And these moves succeeded in keeping rates up and fairly stable in April and May as we've seen. But as there's been a generally unexpected bump in demand since the start of June, this increase in demand met this already very tight capacity to send rates really spiking.
How tight has capacity been? If we look at the data on this slide, again, looking at the Asia-U.S. lane, for example, in May we see 47 out of 249 sailings were cancelled, that reduced capacity by about 19%. And this resulted in quite a full shift. So, utilisation was good from what we've seen. We can infer that volumes in the month of May dropped about 20% year-on-year. And for context, I think January through April overall was down 8% in terms of volumes year-over-year. In June, we can see it also had a 15% reduction in capacity or restriction of capacity through cancelled sailings, which is significant. When some of these volumes return unexpectedly to carriers, its effect was amplified and led to this spike that we've seen this month.
Looking ahead, if we look at cancellations for July and August, we see at this point, and it's getting late to announce rankings for the month of July, these cancellations have been pretty minimal, only 26 blank sailings have been announced for third quarter for U.S. arrivals in July compared to 105 through April, May and June.
So, this approach to not removing so much capacity is really kind of in contrast to the latest, for example, National Retail Federation import forecast, which is forecasting a 70% drop year-over-year in imports in July, double digits in August, and then only more of a rebound in September.
By using blankets as a window into the volumes carriers are expecting, we see perhaps a more optimistic outlook for the coming months than some of the other estimates. Carriers could be seeing this spike in June as the start of an extended rebound, as economies are opening up in the U.S. and elsewhere. We even seen some carriers reinstating some sailings that were cancelled, or it could also be carriers being more cautious about cancelling too much too soon as some of the Q2 cancellations were announced fairly far in advance in trying to be more nimble in meeting these changes in demand so there wouldn't be as big swings.
But this really points to, in my opinion, the overall sentiment in the industry right now, which is really “uncertainty”.
If consumer behavior is uncertain, and businesses are uncertain when to order, then carriers are uncertain about the level of capacity that needs to be in the market in order to manage the businesses. Of course, aside from causing volatility in rates, as we've seen, this drop in trade also has significant knock-on effects on ports on railroads, on trucking, and all the other parts of the supply chain waiting to process these containers. And this drop in volume is, of course, already being felt, as I'm sure Gene is gonna detail for us. That's really kind of a roundup of what we've seen so far, what we can kind of extrapolate, what direction this might put us in moving forward and see what it can tell us about freight forwarding at the moment.
Bill Lines: Thank you, Judah. Some interesting presentations and numbers there. Lori Ann, I wonder perhaps you could take a little look at the here and now. What are your sources telling you at the moment? You're very much someone with your ear to the ground in the U.S. and further afield, I hope.
Lori Ann Larocco: Yes, I was on the phone all this morning trying to get us the latest information. From what I've been told by those on the ground here in the United States at work with European distributors as well as Chinese, that they are still expecting outflow of China, for example, down 15% to 25% in terms of volume, and that the customers that normally order, say, 3 times a week, 40-foot containers, they're now only ordering 1 or 2. And that is a very good forward-looking indicator for this further highlighting, if you will, the stress of the American consumer here. I've also spoken with other retailers, the intermediaries who are telling me that as far as they're looking at back to school, it's much more essential products versus the non-essential products. You can really see that change and a shift of the consumption, of the consumer, and more importantly, the global consumer as everybody can attest around the world as it relates to COVID-19 that we are all looking at buying toilet paper, hand sanitiser and wipes.
As I always say, and what I wrote in my book, trade is agnostic, and it's pure simple supply and demand. So you could take the rhetoric aside. When you look at various trade lanes, particularly, if you will, the intra-Asia trade lane, that lane is very, very interesting because it shows you the semi-finished and the finished goods. The volume is down considerably, and that actually backs up what my folks are telling me on the ground as it relates to the orders that they are seeing at the manufacturers.
For example, there's a wonderful website that is a COVID-19 tracker that is showing you in real time, or as close to real time as possible, which retailers are fulfilling their orders, and more importantly, paying those orders. And you can see which brands have committed to pay in full. Then you have a list of others that have not committed to pay for orders or they don't want them. And why are they not paying for the orders? Why don't they want them? It's because they don't have a buyer. It's the consumer angle. So, based on all this, and from what I'm hearing from my sources, the contraction that we're seeing in containers based on consumption will continue for at least the next several months or so.
Bill Lines: Thank you. Gene, for the panel, to what extent do we think that existing trends are just being accelerated by COVID-19? I wonder perhaps if we could turn to the port of L.A., what's your take on what you've just heard?
Gene Seroka: I agree with everything that's been said. And Lori Ann's ear to the ground is very important, because that's exactly what's happening in the marketplace today.
Here [at the Port of LA], we have a unique perspective on the ground at the Western Hemisphere's largest container port in that we've had two bad shocks to the supply chain. One, the ill advised tariff policies of our administration in Washington with respect to the China trade war. And then that has been the literal shuttering of the American economy in response to COVID-19. Seventy percent of the U.S. GDP is made up of us consumers, and that simply is not taking place today. But there are opportunities as America's economy attempts to reopen and re-emerge.
But, just to set the stage and put this in perspective, as we began to peak in the 2018 calendar year as shown by the upcoming chart, we started to get hit by section tariffs that were implemented by the administration in Washington and we began to feel the effects throughout 2019. Importers began to run up inventories ahead of tariff milestones. These tariffs were put in place were paid by no one else but American companies importing goods from China.
As we continue to see the choppiness or uneven number of imports, it put a unique strain on our infrastructure system. At the same time these tariffs were being implemented, retaliatory tariffs were put in place by China, precipitating 14 consecutive months of exports declines. Everything from agricultural to heavy duty manufacturing, including automotives and tiered suppliers, mainframe computer systems and many other products. So, what this trade policy did quite simply in the United States, was [to] increase imports, decrease exports, and widen the trade gap with China, not an outcome that many would have liked to see in Washington.
Then on the heels of that, which we saw in the fourth quarter of 2019, volume at the Port of Los Angeles dropped by more than 16% as a direct result of the trade war. And now our outlook for the remainder of this year brings us back to pre-recession levels. And I'll remind the audience that here at the Port of Los Angeles, it took us a decade after the Great Recession to get our volume back to where it was pre-2008. Now, I'm not sure that the clairvoyant look at what this pandemic and the combination of the trade war are going to bring, but it will definitely be an uphill climb as our consumers slowly go back to the stores, we go out to our restaurants, and otherwise try to recapture buying patterns.
At the same time, we are discarding dairy products. We are culling our livestock and perishable commodities are wilting on their vines literally. So, in an effort, we need to get folks back to work as quickly as we can, but that's gonna take some real look and vision. What we've seen here as far as the people who work on our docks is that you had just about a corresponding decline in jobs as you do in cargo through the Port of Los Angeles. Year-over-year, our long shore labour dock worker work shifts are down 19%. And compared to a more broad look at the 3-year average, we're down 20%.
Now, at a time when 40 million Americans are out of work because of these policies and the lack of a response to COVID-19, I'll take that for right now. We continue to move essential products and those critical to what we are trying to accomplish here in the United States. We're mustering all effort to help reopen our farm communities, manufacturing sector in our automotive business, among others. But this will have a lasting effect. And it's my view that here in the United States, and specifically Los Angeles, because we have a high China content in our book of business, we will permanently lose 15% of our imports that come through this gateway. Combined with our neighbouring port, we represent 40% of all imports to the world's largest economy.
That being said, the rules are what they are. And we will have to reinvent ourselves. It's my belief that we need to implement a nationwide port community system because the United States, quite factually, is well behind Europe, Asia, and the Middle East. And I know we have delegates on the phone from all those areas here today. We need to advance ourselves digitally so we can get containers, truck, and rail service to those rural communities of agriculture and manufacturing quicker than we otherwise would do in a siloed effect. We also need to make sure that we're combining efforts to help bring the American worker back on the job as quickly as possible.
But make no mistake, this will not be a V-shaped recovery in the United States. As an early indicator of the U.S. economy in the shipping market, we see the knock-on effects of both of these issues lasting at least through the end of this year and into 2021. Again, reminded by the fact that we have so many people out of work,and not many of us are out there spending money in our economy, I put together for the first time a West Coast coalition of business interests to help drive port business in the United States. It includes labour, employers, Western railroads, and others very important to this.
Also, another key statistic is [that] the West Coast ports on the container side of our business in the United States account for 12% of U.S. GDP. Their effect on downline improvement is absolutely critical.
Now, the silver lining may be, as imports go in different directions and away from the West Coast ports, and specifically Southern California, we have an opportunity to focus and over-invest in the U.S. export market as I mentioned. This may, in effect, give us a better balance of trade. Because today, we face a balance of about five laden containers inbound to every two outbound. If we can extract that empty repositioning cost, land side and ocean, we may be able to do some things a little bit differently to lower our cost to serve and become a more attractive gateway for the logistics decision-maker.
But at the same time, because of our very strong financial policies, we'll continue our investment through [the] cycle with nearly $400 million worth of projects, 3,000 construction jobs, and an eye on the digital economy and digitisation of the supply chain, while others are looking towards other areas of focus. At the same time, if we can manufacture all of this improvement in our bricks and mortar infrastructure, as well as digital and process management, we hope to come out of the other end of COVID-19 and this trade war with a renewed sense of earning more cargo, which will mean more jobs, not only here in Southern California but around the nation.
Bill Lines: Thank you, Gene. Lars, if I can bring you in on this. So what's your take on what you're hearing from a carrier's perspective?
Lars Ostergaard Nielsen: Yeah, well, I think let me start off with a word that has been mentioned quite a few times so far, and that's uncertainty. That really is the deeptake we have on what's going on right now.
It is really very, very difficult even for a carrier [of] our size to have a concrete certainty around what's going to happen in the months ahead. As a good example, we had a statement with our first quarter earnings that we had expected an impact likely to be in the 20%, 25% range for volume. We have access to spend it, our full year guidance, because we simply have so much uncertainty that we don't feel we can give an accurate view on ahead of us for 2020. But last week, we actually gave an updated outlook for Q2 where we are seeing volumes coming back a little bit stronger than what we had expected just a few months before.
So, we are now looking at a Q2 outlook [image] where we see our volume being a little bit better than expected. I'm talking [about] global volumes here. We are probably looking at a shortfall to the tune of around 18% rather than what we had feared would be 20%, 25%. Looking into Q3 and Q4, we simply still have so much uncertainty.
We service around 15%, 17% of the global global market. So, we obviously get a lot of feedback and input from a large number of customers around the world, of course including the U.S., but also in the rest of the world. And again, no one is willing to give us too many firm forecasts, which also leads back through to some of the data that was shown from Judah and also from Jan in terms of number of blank sailings in terms of impact on how we are managing our business.
So at this date, I think what we can say is that things are certainly uncertain. What we can see that is more certain [it] is, also as what was shared by Gene, that there's a very clear drive towards more e-commerce, more digital products. We see that customers are looking for solutions that they were perhaps starting to use but we've certainly seen that accelerating during the last couple of months. Even when I look at our own company as a good example, we have actually had periods in the last month where we have had as many as 90%, 95% of our colleagues working from home. So, we have seen a very clear trend that we also need to be a lot more agile in how we run our own company. And that's very much reflected in what we see from our client base around the world as well.
Bill Lines: Okay. Jan, what's your take on what you're hearing, have these guys got it right? Do the stats match up to the rhetoric?
Jan: Well, my main message was [that] it's really difficult and sometimes it's forecasting trade with data on shipping and then trying to forecast shipping with data on trade and the economy. I think everything I've heard is correct, including the uncertainty.
What I think where we will all be on the same page is the certainty with which what shipping needs to do and what ports need to do, which is to dematerialise processes. That's something we have been selling the ideas for decades; you need to automate pre-arrival processing, single windows, digitalise, not attach paper, not to have physical contact. And all of a sudden, thanks and welcome us to the pandemic, the transport workers and the customs officers and the dock workers, they're all very much demanding our solutions, be it sea factory commendations, be it customs automation, be it single window, be it trade information, portals.
So that is something where we are all working on and we see a good coalition that overall I must say that the shipping industry and the ports have reacted very, very well. It's positive, I think. Overall, very few ports were closed for very few days. For industry, that could be a separate discussion. And I know we had as a potential for the remaining 25 minutes that the tripping is actually making profit in this difficult times and some shippers and some advocates and analysts, they say, "This is an indicator that the oligopoly or the alliance or the capacity management works maybe better than some shippers would like it. On the other hand, I don't see any ship that would want another bankruptcy.
So, we are analysing this from UNCTAD. We see overall that the sector as such, ports and shipping, have responded quite well. And we try to support it with the different electronic tools we have. Of course, most of our work is in developing countries but it's the same tool that Gene presented, that others are using to digitalise. And I think that's in there where our sector, the shipping sector, independent of the uncertainty, how bad will it remain? How long will it remain there? Whatever we can do that will be a little less bad, I think we are working on this together.
That's my take on it, I think we see a lot of uncertainty. And what can we do? We can do as good as we can, modernise, dematerialise, and not think that there's a tradeoff. No, it's not that either I protect my population and transport workers and the port workers or I open up and move. We can achieve both with many very specific tools.
Judah: Bill, if I could just add something on what Jan, Gene, and Lars touched on. Again, if there is some sort of silver lining to all this, it has kind of served as a catalyst for this trend of digitisation in the freight industry. And there have been multiple examples of during the pandemic, the introduction of new technologies or the increased use of technologies that are out there to make a kind of a lower-touch process and also create some efficiencies. Maersk had a good example. Their online services and their apps, saw something like a 90% increase in transactions on the Maersk platform during the shutdown. Web cargo is part of the Freightos Group, they're an air cargo e-booking platform. And they had a record number of e-bookings set for the month of March, some of them even from Italy and Spain when they were at the height of their shutdown. I think Zim introduced an e-bill of lading solution during this.
There are many examples, [where] carriers and forwarders, [are] looking for solutions during the shutdown. Perhaps the biggest impact hasn't necessarily been the rollout or adoption of technologies, but really the raising of the profile and the raising of awareness in the industry that these are really useful tools that will serve us well moving forward. You know, moving technology from a nice to have previously to maybe something we need to as we move forward and want to really survive through the next crisis.
Lori: If I can add something real quick, and I just wanna toss it over to Gene. In the United States with the infrastructure as it relates to the need for digitisation, we have had pockets of little black holes, if you will, from the Midwest, finding the containers to get from point A to point B. In terms of this digitisation that you're trying to put together, efficiency helps generate profits. Given what you're trying to do, the task at hand, what is your outlook on this? And then overall, from a trucking standpoint, from a rail standpoint, this is something that really is needed across the board.
Gene: Yeah, Lori, I think that's an important point because in the United States, most of our import cargo goes to major metropolitan areas, big cities where consumers like us live and work. Much of our exports move from our rural communities, farmland, manufacturing areas where these big factories are located. So the question is, how can we move those mobile assets, whether they be the containers themselves, the trucks, the rail cars, engine power, and crew to align with where these consumption and production areas are located?
In fact, some companies have tried but not done so well just yet in attempting to triangulate the moves of some of those assets, including the containers. And this is where an intelligent transportation system network can really help us.
As I mentioned, very broadly, five imports to every two exports in the nation, the balance gets empty, repositioned back to Asia. Now there's a lot of nuance and detail that goes into that. Imagine the extrapolation of those numbers to the truck capacity in North America, the rail capacity again of engine power, the rail cars themselves, positioning the crews at the right location and time with the proper training and then aligning all of that with our all-important vessel schedules that out of a place like Los Angeles will be 40 export vessel sailings per week during relatively normal times.
So, individual companies have done some pretty good work, including Maersk, on how best to manage their customer base. But the question goes beyond that and it is not necessarily to bring others who don't do as well up to that leadership position. I think we could raise all service provisioning companies higher than they may exist today in an effort to bring people together around the reemergence of the American economy.
With that, not only reconnecting U.S. exporting companies to their traditional markets, but attempting to find emerging markets that can help bolster that employment and accelerate the asset velocity of these great service providers that we work with every day.
So, these are gonna be real key aspects. And we could put dollar values on those for savings, because everyone is looking for that right now, but we can't shrink to greatness. We're gonna have to inject incentive monies at the federal state and local level. Ports like us [Port of Los Angeles], as municipal agencies, are also on the ready to invest money, whether it be transactionally or in larger projects, to help accelerate that recovery as well. But we've got to work together and there's got to be a little bit of collaboration that goes on into these areas. So we don't A, leave anyone out, or B, unintentionally harm part of that supply chain without that good vision and good input from our supply chain experts.
Bill: Thank you, Gene. So, do you see this, sort of, happening in the rest of the world? Is it mainly a U.S.-focused response or are similar things happening in the EU and Latin America, Africa, Asia?
Jan: As regards the overall geography of trade, already after the main of the 2008 financial crisis, we saw that, yeah, the trade did no longer grow two to three times faster as the economy. And the big question is now, and I think that points a bit in the direction of what Judah and Gene we're discussing, the who is trading what, with whom?
The elasticities that I brought briefly in one of my earlier slides, the more recent years, trade grew much lower than we would have expected if we had simply extrapolated this correlation between economy and trade. Why is that? That has to do with a growing share of services within the economy. A lot of what we consume does not require transport of goods. So, we consume haircuts and other services.
Then the other, really big question is now, whether as a result of this pandemic - and we had discussed it when we were preparing for this webinar - there will be more local production, more buying local, making local. And there are quite a few people who say, "Yes, we have to buy, we have to produce ourselves. We don't want to depend on whatever needs and medical supplies, food from abroad. Look what is happening now."
I think it's more a question of not wanting to depend on a small number of providers, you want to diversify. And this will always include international providers, but national providers. So in that sense, I am somewhat optimistic that we will continue to trade, I hope so. It also depends, of course, on the trends that were described earlier, Gene mentioned the, call it trade war, call it protectionism, call it weakening multilateral system. This, of course, doesn't help, so if today we see less trade as compared to our economic and development and consumption, it's difficult to identify [if] it is really all due to COVID-19 or is some of this also due to a weakened multilateral system, protectionism, and other trends? Very, very difficult. But again, the main solution should be we do what we are doing best, logistics and trade facilitation.
And then, yeah, the digitalisation I brought up, although I know that the next session of these MarineTraffic webinars will be specifically on digitalisation. So I'm looking forward to this one as well. But I think the linkage is very clear. It's [that] the containers don't lie, the trade forecast, it also has to do with ensuring that we continue to make trade possible, cheap, efficient, more and more digitalised so that these negative trends that we discussed, as little as possible, have an impact.
Lori: I do have one thing to add if I can to Jan's comments. When we're looking at COVID-19 and we were talking about the trade flows, and with China, I think with COVID-19, it really just highlights particularly when it looks at the United States that China really is the dominant manufacturer of all products. And as we've all heard with the rhetoric from around the world, right, about making things at home, here in the United States, you know, I've had CEOs that can't bristle a broom, because they don't have the facilities in place. [This is from] What I have seen from when I've been speaking with supply chain management officials, that they are talking to companies.
Because they may have moved out of China but, because of COVID-19, a piece of the overall piece that they might have been making in Vietnam was still made in China. And because of COVID-19, they couldn't get the product out or more importantly, from a personnel standpoint, various countries weren't allowed Chinese managers inside their facilities.
So what you're now seeing a little bit, it's not a huge trend, but this will actually impact container traffic, the movement of some companies moving to Mexico. That way, it's a little bit closer proximity to the United States. You can rail it in or can drive it in via truck. I think with COVID-19, it just really shows us how small we are in terms of globalisation, how interconnected we are. And now in terms of where we go from here, it's just a matter of planning, but I think we have to come to a harsh reality, at least here in the United States, not everything is ever gonna be made 100% in the U.S., it just can't, economically it can't.
Lars: If I can add a comment to what Jan was talking about. I mentioned before, one of the trends we're seeing from our client base is clearly around digitisation and making sure we run as much as we can online, etc. But another point that speaks to Jan's point is actually what I would call redundancy in the supply chain, because we are seeing people basically across our customer base wanting to look for more options. It doesn't necessarily mean that they're going to near show and locally produce everything. But they're certainly looking for having additional options within their supply chains. Some of that will likely be more near showing, some of it could also be finding a second supplier, and then perhaps both of them are still going to be in China. But instead of relying on one, they will be relying on two or more.
And [about] the point around Mexico, we are clearly seeing that Mexico is becoming a stronger and stronger import location from China. Perhaps more of the product that will be manufactured in Mexico for the U.S. market, will actually lead to an increased number of containers moving from China, it will just move to Mexico or perhaps move into Gene's port [i.e Port of Los Angeles] complex and then be used in the manufacturing in Mexico.
Judah: Yeah, if I could add something. We've seen something similar. So on the Freightos marketplace, which is a marketplace connecting mostly SMBs with freight forwarders for multimodal e-bookings, we've seen something similar if we look at the percentage of search.
In other words, SMBs were looking to import from Southeast Asia. And we've seen a trend that started with the trade war where China, as we said, still obviously has the lion's share. I think it was as high as 95% or 96% of searches were for freight out of China. We've seen that [it] was 89% ahead of COVID-19. Not necessarily that bookings aren't coming out of China, as we said, they're still very dominant. But we've seen at least interest again from this SMB segment of looking to diversify or looking at other options. Of course, China is still holding that biggest share by far.
Jan: I think this trend, the desire to diversify, which makes sense, so we should produce more in Africa and Southeast Asia and so on. On the negative side there, it's more likely to have economies of scale and to actually have integrated regional, even in the European Union and the U.S. in that direction.
In the European Union during the crisis, all of a sudden within trading and with EU borders were closed and that then disrupted even the regional production and it made big countries that don't have internal borders. Although even within the United States, I believe some states made it a bit more difficult to trade with other states. But overall, it's one big market and also, China may have locked Wuhan down for a period. But overall, it does not help to have international borders if you want to generate regional value chains and compete.
Again, it's not just in the ports, it's especially also in transit and border crossings where you don't want the trucks waiting at the border because the truck drivers are not allowed to cross the border. That's another area where also we work with the customs offices in many African countries to dematerialise their processes for which there is an opportunity for some countries to participate in what we think should happen, this diversification.
Bill: Thank you. I think we've got time for a few questions from the floor. "Prices in the COVID-19 crisis, shipping companies were concerned about low sulfur fuel and scrubber fitting. Are shipping companies taking this opportunity to fit as many scrubbers as possible once COVID-19 crisis is over so we don't have to worry about low sulfur fuel?". Lars, I don't know whether you're able to respond to that briefly.
Lars: No, but I can at least speak for the company I represent that - yes, we are continuing to fit scrubbers-, of course. And also shipyards have been impacted by lockdowns and lack of labour. So it's not necessarily something that has been able to continue with the same speed that it was before the crisis hit us. But yes, the process to fit scrubbers is continuing. It is a bit slower than the initial plans, but it's still ongoing.
Bill: We have a question and this is to Judah Levine. He says, "Freightos recently posted reports that air freight rates dropped as much as 60% and we see ocean freight rates picking up. Is this the sign of a recovery?"
Judah: Right, that's a really good question. The question of whether this is heading towards a recovery or not is a really difficult one to answer as we mentioned with so much uncertainty, but if we talk about the impact of the pandemic on different modes, it certainly is a trend.
What we saw was air cargo rates really spiking from the beginning of the year really reaching a peak in April, they were up about 400% of what they were [at the] beginning of the year. And that was due to two things; one is the reduction of air cargo capacity, because almost half of air cargo normally travels by passenger jet, which are largely removed from the market. The other was this peak demand for PPE, as I think some of us have mentioned earlier. Those two things [are] combined to have this very high demand for time-sensitive goods and not so much capacity to carry them, which set rates really skyrocketing.
As the PPE supply chain has kind of normalised, there's been enough of this crisis mode to build up inventories where inventories need to go, more of it can travel by ocean. Not all of it was needed yesterday. That's why we're seeing the reduction in rates and in terms of air, although it should be said that air rates are still much higher than they would normally be this time of year. I think it is a sign of a good step towards recovery. Or that the way the virus itself is being managed is improving in a lot of places. Whether it is a definite sign that we're moving only towards this rebound and there won't be ups and downs along the way is obviously hard to say.
Bill: Thank you. We have a question: "Can you give a brief future perspective of alternative routes, maritime routes around the Suez like sailing around the Cape or the Northern Sea Route in Q3, Q4 taking into account lower demand, all prices, and especially environmental components of the voyage?". It's a good question. We have seen some changing trading patterns, I understand. Perhaps it's something I could ask Jan to answer.
Jan: Well, for quite many years, there have been forecasts or expectations that the Northern Sea Route, and also the Trans-Siberian Railway, would gain significant market share vis-à-vis the sea route through [the] U.S. So far, it has not yet happened. And although we have, again, record temperatures and there will be less ice, the studies we have seen, it will still take a long time because ice-free is not like ice-free, you still need search and rescue, SAR, and it's not quite ready yet in the Northern Sea Route. I think it would take a long time.
For rail, the alternative route vis-à-vis the container shipping through [the] U.S., again, it's not quite that volume that has to cross borders we have seen now, especially in times of COVID, where rail was seen as a possible alternative to air transport because the passengers, they're no longer flying so there was no belly cargo capacity available, so things were put on trains and the trains start at at the border.
So yes, it is growing, but I don't see them in order of magnitude to replace what is happening today with the main East-West routes. It's a guesstimate. In some years, I may be proven wrong, but [I’m] trying to answer the question. Maybe colleagues from the shipping line would actually be better equipped to draw up to this. I don't know if Lars has an opinion here. Gene, I'm sure Gene must look at the competition. And I see a bit more change in the geography of trade interaction if production moves a bit southwards from China more to Vietnam or Indonesia and so on, then all of a sudden the route through the Panama Canal becomes less competitive vis-à-vis the Suez Canal to the U.S. So, these can have a stronger impact on the volumes for Gene's port [Port of LA] than the Northern Sea Route, I guess.
Gene: Yeah, Jan, you're exactly correct. And it follows the investment of the two canals as far as the capabilities here for ports in the United States. The addition of 2-way, 24-hour convoys through the Suez Canal makes efficiency so much greater than it was even a decade ago when I lived in the Middle East.
We look at what the Panama Canal has done with a third lock and that gives economies of scale to larger container ships when liner companies traditionally could only push through 3500 or 4000 CEU vessels. Our ports on the East and Gulf Coast of the United States have invested a tremendous amount of money with the support of the federal government to deepen their waters, widen their channels, and raise bridges to get these larger ships in. So all of that is fact and it's what creates velocity with these assets that helps get a return to the liner shipping company, the railroad, the trucking firm, etc. Worldwide, it's just a little more magnified here in the U.S. with the addition of these capabilities through the two canals.
I think the industry will always continue its attempt to innovate. And whether it be the modes of transportation that Jan just mentioned. Still, the Belt and Road initiative throughout Asia, the subcontinent and out, is of consideration with a lot of China-backed money going into those emerging economies. So there'll always be something but 90% of world trade moves on water today. And to affect that type of change, whether it be near or reshoring, alternative routes, that'll always be in play for some creative mind to help utilise these methods to start alternatives. It keeps folks really fine-tuning their service effort, minimising their cost to be as competitive in the marketplace as possible. So that type of competition around routes and locations is something that I think our industry should embrace so it brings out the finest in what we offer.
Bill: Thank you. Well, I think we've reached the end of our allowed time, pretty much exactly on time. So thank you very much to all our panelists for taking the time and effort to share your expertise with our audience. Thank you to our audience for listening. And thank you very much to MarineTraffic for hosting and organising this event. I look forward to seeing you all again soon. Goodbye.
Watch the full MarineTraffic webinar here.
