Analysis: a container shipping recession; what are the odds?

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Containerised trade can be a complicated thing to forecast. Outside of niche and backhaul trades, the range of commodities transported in containers means that the production-consumption-net trade approach, that can be used to forecast iron ore or crude oil flows, is impractical.

At the same time, a simple and unchanging GDP multiplier can risk missing important near- and long-term drivers.

In practice, forecasters need to take a diverse approach, while also applying a macroeconomic lens that we often find is missing from discussions of containerised trade (as opposed to applying a logistics or supply chain perspective).

This kind of approach can help explain the recent strength of container trade growth. The resilience of trade flows so far this year (in the region of 4.5% in H1, after growth of 6.6% in 2024) is one reason we have increased our forecasts for global growth, from 3% year on year in our Q2 update, to 3.5% with our Q3 data release.

We have remained relatively optimistic about container trade prospects in 2025 for some time, however, with our forecasts over the past five updates ranging between 3% and 3.9% year on year, generally above industry consensus.

Our view that trade growth will dip next year to around 1.7% is mostly tied to an expected cyclical slowdown in the world economy, which will be accentuated by the fallout from industry-specific front-loading dynamics in 2025.

US tariffs are risks to trade, but do not mean the end of globalisation

This is not the same thing as a structural shift in trade, or the arrival of full-blown ‘de-globalisation’, however, and we expect a renewed upswing in trade will arrive once the upcoming slowdown has passed.

If US tariffs remain roughly where they currently sit, this should be expected to lower expected US import volumes relative to a non-tariff counterfactual, since imported containerised goods become more expensive relative to other things that individuals and businesses can spend their money on.

But although the US does remain the world’s ‘consumer of last resort’ for now, the tariffs are not significantly moving the needle in terms of our global container volume forecasts beyond the coming quarters. This is unlikely to change, unless evidence emerges of a more sustained shift in US spending and import patterns.

What’s more, tariffs are not the only relevant driver of the container trade outlook (North America accounted for 18.5% of global container imports in 2024, and 7.3% of exports). Specifically, recent shifts in China’s economy are also currently boosting trade.

The “China Shock 2.0” is a challenge for non-China manufacturers, but positive (for now) for container trade

Once again in the 21st century, a development that may cause problems for domestic industries outside China has proven positive for container trade. The first time around, in the early 2000s, China’s WTO accession and enormous build-out of its manufacturing base and logistics infrastructure added significantly to industry teu-miles, even as certain advanced economy manufacturing centres suffered.

What is happening this time? The Chinese authorities want to achieve an economic growth rate of around 5% yoy, and this growth has to come from somewhere. It can’t come from investment in residential property, where a policy-induced slowdown remains in full swing, and consumer confidence remains in tatters after the pandemic.

Instead, China has doubled-down on manufacturing and exports as a primary driver of growth. It has invested considerably in further building-out its productive base in manufacturing, to the point now where economists believe many of its industries are so productive that this has more than offset a drag to competitiveness from higher wage costs.

A highly productive manufacturing sector, which churns out more goods than the domestic economy can purchase, is evidently a recipe for price cuts, and diversion of goods to foreign purchasers as an alternative.

Hence the wider narrative that has recently spread around a “China Shock 2.0”, which is hitting employment and output in, respectively, hi-tech and ‘new energy’ industries in developed economies (principally Germany), and manufacturing sectors more generally across emerging markets. We think this has been a major driver of strong container trade growth in the past 18 months.

Container trade is better insulated from medium-term downside risks than is generally assumed

What might interrupt our assumptions on global trade? We see a few different potential channels:

• a global recession tanks overall container trade demand;
• despite the discounting of goods’ prices, end-demand for these goods is insufficient, and they pile up as inventories. If this drives financial failures among Chinese firms, they will eventually need to retrench and reduce production;
• other, non-US countries, worry about the health of their domestic manufacturing sectors and impose tariffs or wider trade barriers against China as a result.

Taking these channels in turn, a global recession (potentially tied to fiscal crises) is a clear risk, but not a novel source of risk for the industry, and is inherently difficult to forecast. Among the other two channels, the chances of Chinese industry retrenchment feel more likely to play out in a meaningful way for containerised goods than the rise of global protectionism.

Chinese authorities have reached the point of expressing alarm over the extent of over-supply and price discounting in various industrial clusters and may attempt to encourage rationalisation of production. Increasingly unprofitable businesses may take their own initiative to cut production.

In terms of a protectionist turn against China beyond the US, here we are more sceptical. To the extent that global protectionism does increase, it is likely to be in ‘strategic’ goods, which form a relatively small part of the wider containerised product mix.

Another factor to consider is that economies which also depend on China as a source of export revenues (or where China is a major source of FDI) may not see an attempt to reduce manufactured imports as worth the trouble. India is a possible exception here, and in general is not shy of putting up trade barriers, but otherwise we think the likelihood that a wider range of emerging economies will ramp up trade barriers against China is limited.

Unless the world takes a 1930s-style protectionist turn and a wide variety of ‘everyday’ products are targeted by tariffs, and not just ‘strategic’ goods, then containerised trade should be somewhat insulated from increases in tariffs and protectionism – though both are certainly a source of downside risk.

This is a guest post by Daniel Richards, associate director at Maritime Strategies International

MSI’s Q3 Market Report, ‘Faltering Freight’, is available from [email protected]