China’s Economic Outlook Puts Dent in Confidence Index

For the last five months, supply chain managers indicated that they were losing faith in sustaining long-term distribution plans. Indeed, according to the Stifel Logistics Confidence Index, the decline in scores fell to its lowest ebb in the past three years.

“The continuation of negative macroeconomic trends at the global level – principally emanating from China – represent the principal cause of this decline,” observes John Manners-Bell, chief executive officer of the London-based consultancy, Transport Intelligence (Ti), which conducts the index survey

Chinese retail sales were up by 11 percent year on year in 2015, but the country saw exports fall by 6.9 percent over the same timeframe in value terms, whilst the import decline was even worse at 18.8 percent.

“Each month, respondents to the Stifel Logistics Confidence Index survey are asked a unique, ‘one-off' question,” explains Manners-Bell. The November ‘one-off' question was based around the prospects for volumes during this year's peak volume season, asking respondents what they expect to see happen given that China's economy has been stumbling and global trade volumes have been subdued.”

The largest response group, with 36.4 percent of the total, believed volumes would be acceptable, but that this year's peak will not be as pronounced as in previous years. The second largest group, consisting of 33.3 percent of the respondents, anticipate a low peak at best.

“The last two respondent groups each represented 15.2 percent of the total sample, with one set arguing that it is too early to tell if there will be a meaningful peak, and the other expecting a normal peak season with healthy volumes,” concludes Manners-Bell.

These findings closely mirror those gathered by Moore Stephens International Limited – a global accountancy and consulting network, also headquartered in London. Their own “Shipping Confidence Survey” suggests that there may an eventual reversal of sentiment, however.

“Perversely, the main reason for the improved level of confidence revealed by our latest survey may be the same as that which saw the industry's perceived fortunes equaling a seven-year low in May of this year,” says Richard Greiner, Moore Stephens partner, Shipping Industry Group. “Volatility works both ways.”

He notes that the World Trade Organization's global volume forecast represents a rise from 2.8 percent in 2015 to 4.0 percent in 2016. Again, that is good news for shipping. World trade carried by sea is also on the increase and, despite the current difficult economic climate, the longer-term outlook for the industry remains positive as emerging economies continue to increase their requirements for seaborne goods and raw materials.

“So the long-term outlook for shipping offers encouragement to existing and new investors alike,” says Greiner. “Those who are not attracted by the longer-term prospects, meanwhile, will doubtless exit the industry, and in the process may help solve some of its problems.”

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