HEARD ON THE STREET
August 29, 2012, 7:09 a.m. ET
No Shelter From China's Export Storm
By TOM ORLIK
Any port in a storm, except when the storm is in exports.
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Shanghai International Port Co., 600018.SH -1.20% which operates one of the busiest ports in the world, said this week that net profit for the first half was down 9.6% from a year earlier. Small wonder—Shanghai's export growth slowed sharply in the first half, down to 2.7% year-on-year from 16% in 2011.
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The good news is we're not back in great financial crisis territory yet. In the first half of 2009, Shanghai's exports contracted 22% year-on-year and the port's profits fell 31%.
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The bad news is that there could be worse to come. China's Purchasing Managers' Index surveys show export orders continuing to drop. The HSBC PMI export orders index fell to 44.7 in August, well below the 50 mark that separates growth from contraction and the lowest level since March 2009.
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More negative signs: imports of components that China's manufacturers turn into finished goods for shipment to the U.S. and Europe are flat. That's suggests China's factories see trouble ahead.
Europe's woes will eventually come to an end. But there are longer-term negatives for China's ports. Higher costs for labor, power and land, combined with a stronger yuan, have reduced the competitiveness of China's exports and the country's appeal as a base for low-cost manufacturing.
There are signs a transition is already underway. Macquarie says that since the start of 2011, growth in U.S. rail-freight container volumes has outstripped that of U.S. seaports. That suggests some U.S. manufacturers are already locating production closer to the home market.
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Shanghai Port will hope that rising domestic consumption will drive stronger imports, taking up some of the slack. But with a risk that China's exports continue to deteriorate, ports offer little shelter from the global economic storm.
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