Solving the Mystery of Exit – Wall Street Insights

Since the beginning of the year, the market has frequently underestimated export forecasts (Figure 1). What causes the export puzzles?

Puzzle 1: The “empty” container

Stacks of empty containers at ports have been one reason to worry about exports.

In fact, the historical correlation between container throughput growth rate and export growth rate is not strong, and the historical correlation between the two is only 23% (excluding outliers). The reason for the low correlation is that the throughput of containers does not distinguish between the direction of import and export, nor the direction of domestic trade. In 2022, the throughput of domestic trade containers will also account for 43%. In addition, container throughput data cannot reveal the specific value of goods transported.

Affected by the supply chain in the past year, the correlation between container throughput and exports has further weakened, the correlation between the two in 2022 is only -0.08. The reason is that starting from 2022, the supply of containers will exceed demand. During the epidemic period, China’s container production increased by 66% compared with before the epidemic, and the storage cost of containers in Chinese ports is relatively low.

In November last year, the throughput of heavy containers at major hub ports fell by 9.7% year-on-year, while the throughput of empty containers increased by 23.7% year-on-year. As a result, on the surface, container throughput in the fourth quarter of last year increased by 7% year-on-year, but in fact, domestic exports declined significantly in the fourth quarter of last year due to the dual impact of the epidemic and external demand.

Another point that has been overlooked by the market is thatExport transportation methods include not only sea transportation, but also land transportation and air transportation. Transportation is not only container loading, but also via dry bulk, tankers and pipelines.In March this year, the commodities with high export growth were mainly automobiles (1.5 percentage points in exports), steel products (1.3 percentage points in exports) and refined oil (0.3 percentage points in exports). Among them, the sea transportation of automobiles uses ro-ro ships, and the land transportation uses China-Europe Railway Express; the sea transportation of steel products uses dry bulk carriers; the sea transportation of refined oil uses special oil tankers. This makes the data on container throughput less able to track changes in actual exports.

Puzzle #2: “Sluggish” Shipping Prices

Domestic shipping prices continued to fall in March, and the average value of the China Containerized Freight Index (CCFI) in March fell by 70% year-on-year and 9.3% month-on-month. Among them, the CCFI freight index of the US East route and the Mediterranean route decreased by 59.7% and 71.6% year-on-year respectively, and decreased by 9.2% and 8.7% month-on-month. The Shanghai Containerized Freight Index (SCFI) fell 80% year-on-year and 6.6% month-on-month in March.

The export freight rate index reflects the tight supply and demand of foreign trade containers, but it is also affected by factors such as transportation costs (mainly oil prices) and voyage transportation efficiency. From the perspective of correlation, before 2020, the correlation between the CCFI index and the year-on-year export was 58% (excluding outliers). However, after 2020, due to factors such as the supply chain, there will be a significant deviation between the freight rate data and the actual export data, and the correlation coefficient between the two will drop to 48% (excluding outliers).

In the second half of 2020, due to factors such as poor supply chains, the efficiency of major airlines has dropped sharply. In 2020, the punctuality rate of major airlines around the world is only 22.93%, which is significantly lower than the previous average punctuality rate of about 60%. In terms of exports and subsequent upward oil prices, the year-on-year growth rate of the CCFI index once exceeded 200%.

However, starting from the second half of 2021, the situation began to reverse. As crude oil prices fell, the pressure on the global supply chain gradually eased, and demand began to decline, the container market changed from “hard to find” to “pile up of empty containers”. With a high base, the CCFI freight index fell by 70% year-on-year.

The cycle of export container freight rate index starting in 2020 has also led to a decline in its correlation with the year-on-year growth rate of exports. The market may have to wait until the end of this round of freight rate cycle before being able to track freight rates such as CCFI again. to track the exit.

In addition, since the beginning of this year, the efficiency of customs clearance ports between China and Russia, ASEAN, Central Europe and other land-bordering countries has accelerated significantly.The recovery of land transportation is much better than that of sea transportation.For example, as of March 27, Korgos’s China-Europe freight trains increased by 8.1% year-on-year, and Erenhot’s cargo volume in the first two months increased by 13.4% year-on-year. This corresponds to the sharp increase in exports to China from Southeast Asian countries and Russia in March.This also caused the market to ignore the pull of land transportation to exports because it paid too much attention to shipping data.

Puzzle 3: “Plunging” South Korean exports

While the year-on-year growth rate of China’s exports was higher, the year-on-year growth rate of South Korea’s exports fell by 6.1 percentage points to -13.6% in March. This is also the sixth consecutive month that South Korea’s exports have been in the negative growth range.

In previous years, the export growth rates of South Korea and China were similar. After excluding January-February (Spring Festival factors), the year-on-year correlation between China and South Korea’s exports could reach 76%. The reason is that the export structure of China and South Korea is similar, among which electromechanical commodities (HS 84th and 85th categories) account for 43% of the exports of China and South Korea (HS84 of China is higher than that of South Korea, and HS85 of South Korea is higher than that of China). Four of the top five commodities in China and South Korea’s export value are consistent, and seven of the top ten commodities are consistent (all HS first-level caliber).

However, in terms of subdivision, there are also obvious differences in the exports of China and South Korea.For example, South Korea’s electromechanical exports are mainly concentrated in the semiconductor industry chain, of which integrated circuit exports account for 17%, while semiconductors account for a relatively low proportion of China’s electromechanical exports, with integrated circuits accounting for only 4.6%.

Therefore, South Korea’s exports are more significantly affected by the global semiconductor downcycle.In March, South Korea’s exports of information and communication technology industries fell by 32.2% year-on-year, of which semiconductors fell by 33.9%, mobile phones fell by 49.3%, and computers fell by 52.5%.

In the first quarter, China’s new energy vehicles, lithium batteries, and solar cells exported a total of 264.69 billion yuan, a year-on-year increase of 66.9%, driving exports by about 2 percentage points.

Puzzle 4: “Improper” imports from Vietnam

The market still has a doubt about exports: the data on China’s exports to other countries and the data on imports from China are inconsistent.Representative among them is that China’s exports to Vietnam increased by 38.2% in March, but Vietnam’s imports from China only increased by 7%, and there was a significant difference in absolute volume.

The discrepancy between the data of China’s exports to foreign countries and foreign imports from China is actually a common phenomenon, and it does not only appear in the data at the beginning of this year. This is related to the origin identification rules, pricing rules (FOB, CIF, etc.), transit time (China has exported but the importing country has not received the goods) and other factors. For example, if China exports goods to Vietnam, it will be counted as exports to Vietnam, but Vietnam will reprocess them and then transship them to the United States. Vietnam will consider them as re-exports and will not be included in the import data. The United States may include imports from China.

Historically, China’s exports to Vietnam were significantly higher than Vietnam’s imports from China. A similar situation also existed in Hong Kong, China. Mainland China’s exports to Hong Kong were higher than Hong Kong’s imports from China.All these may be related to the prosperity of entrepot trade.Especially since the end of last year, the degree of differentiation between China’s exports to Vietnam and Vietnam’s imports to China has further amplified. A similar situation has also appeared in Hong Kong, China, which may reflect the recent increase in the proportion of re-exports.

Author of this article: Song Xuetao of Tianfeng Macro SAC License Number: S111051709003, source of this article: Song Xuetao of Tianfeng Macro, original title: “Unraveling the Puzzle of Export”

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