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China’s PMI contracted to 35.7 index points in February – what does it mean for shipping?
The latest PMI (Purchasing Manager’s Index) reading from the National Bureau of Statistics confirms what we all had expected: the coronavirus has dealt a merciless blow to Chinese manufacturing. The official Chinese PMI, which tracks larger businesses, slumped to 35.7 index points from the 50 points reported in January.
The Caixin PMI index, surveying small-to-medium size businesses, dropped to 40.3 from 51.1 in January. Both readings mark contractionary territory – a negative development specifically for the container shipping sector.
Particularly relevant for shipping, the ‘Production Index’ took a substantial hit to settle at 27.8, a marked change from the 51.3 reading in January, while the related indicator ‘New Export Orders Index’ dropped to 28.7, down 20 points from January. Such massive contraction of indices translates into significantly weakened demand for maritime transportation.
Actions taken by liner companies
Liner shipping companies have responded to this by cancelling a considerable number of sailings out of China specifically, as well out of, and within, the Far East region more generally. This affects high volume and long-haul services bound for Europe and North America, but also secondary services bound for South America and Persian Gulf.
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Widespread stagnation of manufacturing
The widespread shutdown of China has sent shockwaves through global supply chains. PMI readings in Japan, South Korea and Germany have all highlighted a disruption to manufacturing operations through February. Consequentially, output and new export orders have declined across the board and container shipping stands to take the brunt of this coronavirus-induced blow. The negative readings highlight the world’s dependency on China as a supplier of goods but also as a major demand driver of imports.
Another point of attention should be the ‘Supplier Delivery Time Index’ which is down to 32.1 in China, with similar drops across the globe. A straightforward indication of disrupted supply chains.
Looking ahead
The economic outlook is currently obscured by a fog of uncertainty and, if judging by the financial markets, the economic impact of the coronavirus is no longer confined to China. While much of the Chinese labour force has commenced the migration back to the factories, the coronavirus has started to spread globally, which has cast a much greater shadow over the global outlook than previously. Liner shipping thrives on new export orders and stable demand for manufactured goods and if the coronavirus continues to drag on the Chinese economy and beyond, it could bring dire consequences for container carriers and the broader shipping industry.
Much more
Our most recent Shipping Market Outlook: Macroeconomics which matters to shipping, gives you more insight on how BIMCO expect the markets to develop.
https://www.bimco.org/news/market_analysis/2020/20200225smoo01_macroeconomics
Additional link is to our container shipping market outlook:
https://www.bimco.org/news/market_analysis/2020/20200226smoo01_container_shipping
