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Improving Chinese manufacturing conditions
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Air and Ocean rates holding strong pre-Chinese New Year holiday
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Can the momentum last post-Chinese New Year holiday?
Saturday, January 28th is the Chinese New Year, marking the year of the Fire Rooster. Historically, to make sure businesses had enough inventories on hand before manufacturers closed for the New Year celebrations, air and ocean capacity would be secured often at high rates due to the limited amount of capacity combined with high demand. Known as a peak season for freight providers and forwarders, the past few years have seen less demand for such services. Is this year different?
Improving Manufacturing Signs
Events leading up to the New Year indicate a potentially positive first half of 2017 for China. China’s manufacturing activity expanded at its quickest pace in nearly four years in December. According to the Caixin Purchasing Manager’s Index, which measures conditions at smaller manufacturing facilities, strong demand and an increase in new clients for Chinese manufacturers boosted the monthly score to its highest since January 2013.
Likewise, a separate index, which measures activity at larger manufacturing facilities, noted an ever so slight slip in month-to-month results. Despite the December slip, the November reading marked the fastest growth in two years.
This improvement in manufacturing bodes well throughout the first quarter of this year so freight transportation should remain positive at least into second quarter.
As manufacturing begins to gain momentum, are air and ocean freight providers also gaining momentum?
Ocean
Throughout the final quarter of 2016, spot rates on Asia-Europe and Transpacific lanes have strengthened. The trend seems to have continued into January as spot container freight rates hit a twenty-month high the first week of January on the major east-west liner trades. Drewry expects the increasing volume will support further increases in spot rates through at least another week or two as the Chinese New Year approaches.
Air
Demand for air freight has been strong through the second half of 2016. In fact, Drewry reported that its East-West Airfreight Price Index recorded a year-high of 103.2 in November, against 99.3 in the same month of 2015. Flying Typers publication notes that rates have remained strong throughout December and into January because of the early New Year’s date. Paul Tsui, managing director of operator Janel Group, said to Flying Typers that air freight demand would see a “moderate peak” before Chinese New Year, helping extend the strong end to 2016.
The Outlook
By all accounts, the weeks leading up to the Chinese New Year holiday appear to be a welcome one for both air and ocean freight providers. Rates are holding firm as demand appears to be improved compared to the same period in 2015. The question is though, can this momentum build or even be maintained after the holiday period? 2017 holds a lot of uncertainty in the global trade markets. Be sure to follow us on Twitter as well as sign up for our newsletter to stay current with the latest industry news.
