China’s economic woes a strong warning for logistics sector - report

The minor financial crisis experienced in China has acted as a strong warning to the global logistics sector which is heavily exposed to the Chinese economy, notes the latest Transport Intelligence (Ti) report. “If China's economy were to crash, the implications for the logistics sector would be enormous,” says Ti’s Thomas Cullen. He believes the logistics sector is so large and so central to the world's economy that any macro-economic trend has a particularly strong effect upon both the sector's structure and its business cycle. Cullen says China’s financial woes of late could represent the inevitable end of an unsustainable economic trajectory, according to financial analysts. “If they are right, it implies a change of the rate of expansion and the nature of the Chinese economy.” Possibly the first effect would be on the volume of imports to China both by air and by sea. “A large proportion of this trade is for re-export as assembled products, for example in electronics or household goods. Yet the consumption of both Chinese industry and the private consumer is still substantial,” says Cullen. He cites the most recent figures from Drewry shipping consultants showing that imports from Europe to China by container saw no growth in the opening months of 2013. “Any fall in confidence would suggest an even weaker container shipping market,” he says. Cullen predicts that the effect on airfreight is likely to be even greater, as the displacement of Chinese demand would drive up inventory levels, therefore depressing demand for airfreight both in and out of China. “The effects on bulk shipping would possibly be the most painful of all. Already in an unhealthy state, any interruption to the Chinese building frenzy will hit the demand for iron ore and other metals badly,” he says. On the optimistic side, any problems in the Chinese economy are likely to continue to drive down the price of oil, says Cullen.