Economic Weekly: Global trade recovery squeezes shipping capacity

One of the (many) surprising aspects of the economic impact of COVID-19 is how well NZ goods exports have held up relative to goods imports during the pandemic.  As an exporter, NZ is vulnerable to a fall in global demand – although one of the key lessons is that the fall in demand has not been evenly shared across economic sectors.   With countries resorting to lockdowns once the virus spread escalates, demand for types of goods have shifted.  For example, from eating out to eating at home – putting pressure on wholesale supply chains to quickly divert food from restaurants to supermarkets and meal kit delivery services.  Likewise, less money is spent on commuting, but more money has been spent on technology to improve the home office. With NZ’s exports of goods skewed toward food, and given the world still needs to eat, NZ exports held up relatively well to date.  In contrast, NZ’s imports of goods plunged in April and have been slow to recover – and will only return to year-ago levels in November (see NZ trade indicators in our weekly chart pack).

But why have NZ imports been slow to recover, when electronic spending data point to a strong recovery in retail therapy?  The answer may lie in a shipping capacity shortage. COVID-19 severely disrupted trade flows earlier this year and the logistics of global trade have faced a number of unprecedented challenges this year.  Once the economic activity started to resume from the initial lockdown, the ability to send goods from A to B became complicated.  With international boarders closed and air passenger demand collapsing, the ability to send goods by air freight has become severely impacted.  Even with airlines repurposing passenger planes to be freight-only planes, the number of weekly global commercial flights in November remains 2/3 of February flights.  This has seen shipping demand surge.

The RWI/ISL Container Throughput index (chart opposite) can be viewed as an indicator of global shipping trade – while activity plunged during the early days of the global pandemic, by September container shipping activity has surged to be 5% higher than pre-COVID levels.  This has spilled over into higher shipping costs and reports of delays getting goods out of key shipping hubs – such as China.  These challenges are also underscored by a number of anecdotes in NZ of supply shortages of imported goods, such as car parts, construction materials and retail goods.  With shipping indicators demonstrating that global demand is now running ahead of supply, the question is how quickly will cost pressures support a recovery in generalised inflation pressures – particularly in a country like NZ which is in a fortunate position to be largely COVID free. In the meantime, we suggest doing your Christmas shopping early this year to avoid missing out.