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global container trade weakens

In a report issued in mid-September, Global Insight's Paul Bingham warned that 2008 would not be a good year for container shipping companies.

In an interconnected world, economic infections spread rapidly. It should come as no surprise, then, that as the U.S. economy's health has deteriorated, global trade has weakened along with it.

In a report issued in mid-September, prior to the banking collapse that led to the Wall Street bailout, Global Insight's Paul Bingham warned that 2008 would not be a good year for container shipping companies. Bingham, managing director of the research firm's Trade and Transportation Group, wrote that he expected to see red ink on shipping companies' ledgers in the third and fourth quarters. Container trade should begin to recover by the end of next year, Bingham added, but he cautioned that his assessment came with "a lot of provisos and caveats."


Bingham said his concern was not so much with the fundamentals of the container shipping industry as with the spreading liquidity freeze and the resulting decline in demand. He said he expects U.S. imports to decline more severely and rapidly than originally anticipated. Global Insight now forecasts a decline of 8.2 percent for containerized imports in 2008; the firm previously had forecast a 7.1-percent drop.

With economies around the world facing contraction, Global Insight has downgraded its near-term forecasts of ocean container trade for several regions, including Europe. "We have been concerned with the growing number of economic indicators for the European Union that point to a greater loss of consumer confidence than had been previously anticipated," Bingham wrote. "Indicators now suggest that the EU is headed toward recession." One such indicator was a fall in European industrial production in May, the sharpest drop since 1992, according to Global Insight.

On a more optimistic note, the firm expects the final numbers for 2008 will show U.S. export growth of 22.6 percent, compared to an earlier forecast of 17.7 percent growth. In particular, there have been significant gains in exports to Brazil, India, Indonesia, Malaysia, and South Korea. Most of the export growth took place in the first half of the year; growth is forecast to slow in the second half.

Another potential bright spot for shippers: The weakness in trade volumes comes just as many shipping lines are taking deliveries of new container vessels. The resulting increase in capacity during a period of slow demand is likely to exert downward pressure on freight rates. Bingham wrote that spot rates from the Far East are already declining, and that some carriers are forgoing their normal peak-season surcharges.

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