Freight Forwarders serving China are gloomy about prospects for 2016 after a series of economic forecasts painted a bleak picture.
Earlier this week the International Monetary Fund predicted a further slowing of China’s economy in the next two years, with growth of 6.3% predicted for this year and 6% in 2017. This followed confirmation that China’s economy grew by 6.9% in 2015, a 25-year low, news that helped spur a stock market slump amid fears that the country could suffer a major downturn.
As reported in Lloyd’s Loading List.com, forwarders in Hong Kong and China were already concerned about demand on key trade lanes as PMI readings weakened. According to Peter Orange, Regional Manager for Freight Sales at logistics group GAC, those concerns have now hardened.
He said the general feeling among traders and forwarders in China was “not optimistic” with ocean freight rates bearish and lines seemingly more concerned about market share than pricing.
“This is the result of falling consumer demand in China, falling demand for resources and energy as well as generally poor market sentiment caused by the China stock market downfall.
“There is continued downward pressure on freight rates with carriers trying to restore prices, but these efforts remain unsuccessful.”
Orange said GAC had not seen a peak season for air cargo towards the end of 2015 when the market was “very weak”, while local and international demand for forwarding services had been bearish.
“In general, we see no signs of a pickup in freight demand this year,” he said. “The expected pickup in demand before the CNY will probably not happen, and normally after the CNY, it is low season.
“We foresee the situation will be worse after the CNY and this will mainly be driven by the local market in China, which has been experiencing one of its most panicky moments as the economy is restructured.
“The US and Europe will likely be affected by the slowdown of the Chinese economy.”
He said the upshot of weak ocean rates was lower profit margins on FCL products. “Hence we need to keep a strong focus on cost savings by keeping our operating costs as low as possible in order to remain competitive and profitable,” he added.
“Current low ocean rates are already eating into our profit margin. There are two factors which will further aggravate the situation, driving it to the extreme negative end: first nobody knows what the lowest rates will be; and second, stiff price competition is becoming a disease that is killing both carriers and forwarders.”
GAC is now attempting to focus more keenly on intra-Asia business, which is expected to continue to grow for most of the next decade, although early signs at the start of 2016 have not been positive.
“It is a market that we will focus more on in the coming year and years as this business between GAC offices is a key component of our strategy going forward,” he said. “In theory, China has been pushing intra-Asia demand by its incentive approaches. However, from what we have witnessed in the first couple of weeks of the New Year, intra-Asia demand does not look promising in the near future.”