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China
trade unbalances shipping
By Thomas Fuller
International Herald Tribune
MONDAY, JANUARY 30, 2006 - HONG KONG From the control tower
high above the sprawling container port here, Danny Law
helps manage the relentless loading and unloading of cargo,
day and night.
The massive ships that dock below his office window look
similar from a distance, each stacked high with thousands
of red, blue, green and orange containers, adding a touch
of color to an often gray Hong Kong horizon.
But Law can spot a key distinction among the ships when
he checks his computer: images of the ships arriving from
Europe or the United States are speckled with "e"
markings, short for empty containers.
"Sometimes we get a vessel coming in where the whole
thing is empty," Law said.
Shipping executives call this the problem of the "empties."
And as a measure of China's growing power in the world,
nothing is quite as poignant.
For the shippers that carry television sets, sneakers and
other manufactured goods to the United States and Europe,
trade with China is booming, but it is increasingly a one-way
street.
Of every 100 containers that crossed the Pacific Ocean from
Asia to North America last year, 60 came back empty, according
to Drewry Shipping Consultants, a research organization
and consultancy.
The containers that did come back full were often transported
at a steep discount for lack of demand.
On European routes, 41 percent came back to Asia empty last
year.
"Year after year, the gap gets wider and wider and
wider," said Nick Hay, senior vice president at U.S.
Lines, a California-based shipper, referring to the shipping
imbalance between North America and Asia. "It's such
a big issue. And there's no end in sight."
There are ships that arrive full in China, from countries
like Brazil and Australia and from the Middle East. But
these carry commodities like iron ore and coal.
For politicians and ordinary consumers in the United States
and Europe, the massive and growing trade deficit between
China and the West is a worrying but abstract statistic
that periodically makes headlines or provides political
fodder for those worried about China's rise.
But for those in the shipping business, the trade imbalance
is a very real dilemma. Shippers have spent the past decade
wondering what can be transported to China for the long
return journey. It takes about 14 days for a typical container
ship to travel from California to Hong Kong.
"The cost of all this empty space on ships is a multibillion-dollar
loss," said Philip Damas, research director at Drewry,
"an extra cost of doing business for the shipping companies,
exporters and importers."
The world's major shipping companies boasted respectable
if not handsome earnings last year, with profit margins
of about 11 percent, Damas said.
But traveling empty or half-empty across oceans is a waste
of fuel and is increasingly eating into the bottom lines
of shipping companies.
Shippers are so eager to fill their vessels for the return
voyage to East Asia that they accept many types of unprofitable
cargo, like bales of hay.
"It's hard to believe, but it's one of the main U.S.
exports to Asia," Damas said.
Furniture, toys and footwear were the top three items transported
by container last year to the United States from China,
according to Piers, a U.S.-based research company. In the
other direction, waste paper and other paper products were
by far the largest commodity shipped from the United States
to China, followed by scrap metal and raw cotton.
In other words, the United States received millions of new
manufactured goods and sent back tons of trash and raw materials.
A decade ago, container traffic across the Pacific was closer
to equilibrium, according to Drewry. For every 100 containers
that crossed the Pacific to the United States, only 16 came
back empty.
The imbalance began to worsen after 1997, when Chinese manufacturing
went into high gear and Southeast Asian countries suffering
from a regional financial crisis devalued their currencies
and exported their way out of their economic slump.
China announced this month that its surplus in its trade
with the United States in 2005 came to $114.7 billion. U.S.
government calculations, which are now being completed,
put the number closer to $200 billion.
With the 25 countries of the European Union, China says
its surplus was $70 billion, while EU figures put it at
well over $125 billion.
The large disparities in these estimates illustrate the
difficulties in calculating the trade imbalance when goods
may be shipped and transshipped a number of times before
reaching their final destination.
The container imbalance is a clearer measurement, albeit
one that only takes into account volume, not the value of
the goods.
Nicholas Lardy, a senior fellow at the Institute for International
Economics in Washington, said the container imbalance between
China and the West was to some extent a technical problem
because China's main imports were bulk cargo - commodities
like iron, soybeans and oil, which are not typically shipped
in containers.
This cargo is mismatched with China's exports, which are
mostly manufactured goods.
"They're going to have an imbalance right off the bat,"
Lardy said.
In the long span of history, the dilemma of the empty containers
is necessarily recent, since container shipping only became
widespread in the 1970s and 1980s. Previously, cargo was
bundled into a ship's hold.
But shipping imbalances between China and the West are as
ancient as the silk looms that drew foreigners to the Middle
Kingdom centuries ago.
Europeans in the 17th and 18th centuries wanted Chinese
silks, porcelains and teas, but few Chinese wanted to buy
European wine or wool, according to Susan Perry, a China
specialist at the American University of Paris.
The equation shifted to Europe's advantage with the export
of Indian opium to China in the 18th and 19th centuries,
a commodity that bred addiction and eventually resentment
and unrest in China.
"With the exception of opium, the Chinese have rarely
experienced a trade deficit in their economic history,"
Perry said.
Today, some shipping executives say, it is not profitable
to ship anything to China.
Hay of U.S. Lines said shipping companies would be better
off going back to Asia totally empty.
He said shippers typically charged about $200 to transport
a container filled with waste paper to China from the United
States - an amount that does not come close to covering
the cost of the journey.
U.S. Lines is known in the industry for its pioneering approach.
Its ships almost always travel empty from the United States
to China because the company says it is more lucrative to
steam back quickly and unencumbered than to take on cheap
and unprofitable cargo.
Often after transporting waste paper or scrap metal, a container
needs cleaning, an extra step that slows down the turnaround
time, Hay said.
Traveling with empty containers means that Chinese cargo
can be quickly loaded for the next journey to North America.
"If most carriers did the math as carefully as U.S.
Lines did, they wouldn't be carrying nearly as much westbound
cargo," Hay said.
From the standpoint of the American exporters who do sell
things to China, the imbalance is a welcome if de facto
subsidy.
Damas, the Drewry research director, calculates that shipping
companies charge an average of $1,400 to transport a 20-foot
container from China to the United States.
From the United States to China, the companies charge much
less: $400 or $500.
"In no way does that cover the full cost of shipping,"
Damas said.
The overall imbalance between Europe and China is less severe,
Damas said, because European companies ship more machines
and other equipment to Asia than U.S. companies do. European
luxury goods, like wine, handbags and clothing, also travel
by ship, and Europeans buy fewer Asian goods than Americans
do.
But China's imbalance is growing, both with Europe and the
United States, and not only on ships.
Nol van Fenema, the editor and publisher of Payload Asia,
a Singapore-based trade journal, said airlines had become
so eager to put something in their cargo holds on the inbound
journey to China that rates go as low as 30 to 40 cents
a kilogram, compared with $3 to $3.50 a kilogram leaving
China.
"Very bluntly speaking, they're flying in empty and
flying out full," he said.
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