Kong Hei Fat Choi! Happy Lunar New Year!
In the year of the wood snake, according to a Chinese horoscope I consulted, business will do better at export than domestic sales. That's good news for China, where consumer confidence is at an all time low, scoring below 90 points. In its latest wheeze to get the domestic economy moving again, Beijing has been handing out vouchers which give consumers 20% off the price of consumer electronics and white goods. I was reminded of the Covid era cheques that the US government distributed. Critics say that the vouchers are only bringing forward purchases which would have happened later. As consumer prices continue to deflate in China, will the vouchers only accelerate that process of deflation? That could make life harder down the line for retailers and manufacturers.
China's main export market is the US whose new president is, as we all know, keen to reduce imports from China. There is a long way to go. Despite Mr Trump and Mr Biden's efforts over the last eight years, US imports from China have continued to grow. US containerised imports in 2024 reached 28.2 million TEU, of which 40% came from China. As US importers scrambled to build inventory ahead of what seem to be inevitable tariffs, December containerised imports reached their third highest monthly total ever at 2.4 million TEU. Imports from China in December were 903,000 TEU, which was a 1.7% month-on-month increase and a 14.5% year on year increase.
The freight rate for one forty-foot container shipped from China to the US increased in December and January and stands at over $5,200 to the west coast and at over $5,500 to the east coast, inclusive of Panama Canal costs. We have all heard what Mr Trump has to say about Panama. I'd just note that none of the to ten container shipping companies, who between them lift 8 out of 10 boxes worldwide, is based in the US. The US Navy is the only organisation to get a permanent discount on Panama Canal fees. If Mr Trump's assertions are to be the casus bellum for an invasion of Panama, then we can truly say that the Republic has become an Empire.
Mr Trump is still keeping us all guessing about what he will do about China. He has repeatedly said that China has a bigger peacekeeping role to play in Ukraine and has expressed caution about banning TikTok, sensing an opportunity to extract tribute in order to allow it to continue to operate in the US. He may have a deal in mind, and is probably attracted by a negotiating a grand imperial bargain head to head with Xi Jinping. DeepSeek, China's cheap generative AI, has scored a big win in wiping billions of dollars of value off the US stock market. It has become the most downloaded app from the Apple app store. All those users are surely loading China with data and information which could be of more than commercial value. Journalists have quickly found out that DeepSeek is censored on the subject of Chinese politics - it even warns about misuse of children's character, Winnie the Pooh.
Can a deal be struck? Chinese Belt and Road propaganda often mentions collaborative benefits and win-win opportunities, though you may doubt the sincerity of such sentiments. By contrast, the America First concept seems to offer a zero sum view of the world, in which America Wins and You Lose. There are no spare berths in the America First boat, as the leaders of several nations allied to the US have already discovered. How then will the Trump 2.0 administration treat its main strategic competitor? Mr Trump knows that what President Xi really wants is to reintegrate Taiwan. To do so would be the pinnacle of China's renewal and an appropriate victory for sanctifying Xi Jinping's legacy. Reabsorbing Taiwan would also give China greater control over the South China Sea. Perhaps the political price of the US withdrawing its opposition to a China-Taiwan Anschluss is a withdrawal of Chinese goods from the US market and a rebalancing of the US trade deficit with the Middle Kingdom. The price might also include China not opposing the US re-taking control of the Panama Canal Zone. In other words, China gets a zone of influence and in exchange US gets a zone of influence.
What does it all mean for shipping? The container shipping business is probably the most exposed to a deglobalised world of spheres of influence. Trans-Pacific trade would take a serious hit. Mr Trump could even pressurise his European allies to cut their imports from China and import more from the US. In such a scenario, there would be an increasing oversupply of the largest post-Panamax and neo-Panamax container ships which between them represent 85% of all boxship capacity delivering in the 2020s, including the extant fleet and the current orderbook. The new-look, deglobalised world order would seriously disrupt the liner trade which has done so much to support globalisation by offering ever safer, ever less polluting, ever more convenient transport of goods over ever longer distances and, despite recent price spikes, at a still-reasonable cost.
Figure 1: Current Container Ship Fleet and Orderbook by Decade of Delivery
Next in line for disruption would be shipbuilding, a strategically important industry for China. In the 2010s, South Korea built 57% of all new container shipping capacity and China built 26%. So far in the 2020s, including the current orderbook, South Korean yards have a 32% market share and Chinese yards enjoy a 59% share. A slump in orders for container ships would significantly affect Chinese shipyards.
Figure 2: Regional market share of container shipbuilding by TEU capacity
So, while we are all kept guessing as to what Mr Trump has in mind for US-China relations, let's consider the Chinese astrological Snake: it is wise, mysterious and thoughtful. Snakes like big ideas and understanding how things work. In this Year of the Snake, we could all do with some of these characteristics if we are to come out the other side in better shape.
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