VesselsValue AIS and trade manager Charlotte Cook uses trade data to analyse the impact Joe Biden’s election to America’s highest office is likely to have on US container ship demand
President Biden’s electoral win and inauguration have come at a time when container ship rates have remained sky high, with vessel demand surging globally after almost standstill operations in H1 2020. After experiencing record high earnings in Q3 and Q4 2020, the container ship sector is expected to continue recovering through 2021.
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The best performing container ship types have been the larger sizes, listed in descending size order from left to right on Figure 1, above. For example, rates for post-Panamax-type container ships reached US$36,000 at the start of January 2021, 20% higher than the same period in the previous year. It is also evident that January 2021 rates for sub-Panamax-type container ships were up 50% compared to the same period in 2020. These strong market conditions for the larger container ship types have trickled down to the smaller Handysize to Feedermax vessel types, which have seen rates increasing since the beginning of Q3 2020, but at a slower velocity than the larger types.
Alongside healthy rates across the sector, container ship cargo miles have been growing overall into the US since Q1 last year, reaching record highs. Cargo miles combine actual distances sailed by each vessel and estimates of cargo volumes (number of container ships) to indicate the true demand for vessels.
Initially falling at the start of 2020 due to the onset of Covid-19, cargo miles quickly recovered after February 2020 as many Asian countries (particularly China) contained the virus and restarted operations, alongside increasing demand in the US as lockdowns eased. A peak in cargo miles into the US was seen in October, reaching 17.9Bn TEU-NM, which was 23% higher than levels seen in 2019. Since then, cargo miles dropped marginally in November and December 2020, but have remained high.
To fully understand this recovery, we must investigate where US imports are originating.
As the chart shows, over the past year exports from China have garnered the highest number of cargo miles to fulfill container demand coming into the US, followed closely by exports from South Korea. Expectations are rife that the Biden administration’s less protectionist approach to China, as compared with the prior US administration, will continue to support this underlying trade flow (rather than potentially hindering it through tariffs). Any signs President Biden shows of improving US-China relations bodes well for sustaining the current health of the container market.
To further analyse the China to US trade flow, we will look at total capacity on the route since the beginning of 2019. Figure 4 shows a year-on-year view of total container ship (TEU) capacity for all container ships between Handysize containers up to largest ultra-large container ship types, from China into the US.
As the chart shows, capacity growth in 2020 surpassed 2019 levels in June 2020, hitting steep growth through September before levelling off. In former President Trump’s final months, US reliance on China for Covid-related medical equipment kept imports high, despite his imposed tariffs. This demand is expected to remain in place at least until widespread vaccinations have been achieved, well into President Biden’s first year in office.
So far, President Biden is keeping his cards close to his chest with regards to lifting tariffs. However, his political tone suggests a much more collaborative approach with trading allies, and he has pledged to undertake a detailed review of current agreements. This could result in a softening of trade restrictions with China and an increase in container imports into the US, reversing the overall trend during the previous administration.
President Biden’s promise to prioritise stimulus spending is also a positive sign for container shipping demand. Encouraging spending and online consumerism is not only likely to improve the US economy, but also have knock-on effects to global trade flows as the US will continue to receive goods from China and the East.
Despite these positive signs for the container shipping market, President Biden’s inauguration still comes with some uncertainties. Some of President Biden’s policies place emphasis on investing in domestic US manufacturing, and look similar to some of former President Trump’s stances. If the US were to ramp up manufacturing and production, this could result in a decrease in some of the containerised imports the US currently relies upon. However, any major shifts would likely be longer-term considerations, and thus unlikely to impact US demand in the mid-term.
Taken as a whole, the container market is doing well and President Biden’s win is a promising sign for sustaining this success.
Many of former President Trump’s policies leaned towards restricting container shipping flows instead of expanding them. President Biden’s policies are expected to favour improving relationships with trading partners and US stimulus spending, moves that are especially important for the container shipping market in the wake of Covid. With many countries now rolling out vaccination programmes, container shipping demand is likely to continue rising as economies recover and lockdowns are eased, keeping important trans-Pacific volumes strong.
VesselsValue offers the following disclaimer: The purpose of this article is to provide general information and not to provide advice or guidance in relation to particular circumstances. Readers should not make decisions in reliance on any statement or opinion contained in this article.