Oil price influence on EU import, inward container transport and trade balance with China

Oil is an important fundamental component in the global and maritime transport trade. Higher oil prices during the first oil crisis in the 21st century leads to higher maritime transport costs. The main objective of this thesis is to research if oil prices has a significant influence on EU import and inward container transport from China and if there can be found significant consequences in EU trade balance with China. This objective is translated into a main research question: Could oil prices influence EU import, inward container transport and trade balance with China? In order to get an answer to this question I investigate the oil influence on EU import, inward container transport and trade balance with China for the period 2000-June 2009. Since 2000 we have experienced a global oil crisis with increasing oil prices and a following global credit crisis with decreasing oil prices. Growing global oil demand, particularly boosted by emerging countries such as China leads to oil price surges, which peaked at $132,35 on 3 July 2008. Implications during oil crisis are higher transport costs, inflations and food crisis. However, the turning point is the credit crunch global breakout, which is followed by a lower global demand for goods and lesser transportation. This leads to a nose-dive in oil prices to $33,73 in 26 December 2008. Growing EU-China trade is boosted by increasing EU firms demand for Chinese goods by sourcing out manufacturing activities to China. China has become EU’s factory due to its comparative advantages in manufacturing, progress in global containerization and ability to put more labour in production to offset higher energy costs. High oil prices during oil crisis forced shipping lines to adjust their vessel speed and fleet management by employing more ships and at the same time solve TEU capacity oversupply. Additionally, shipping lines add more BAF and oil related surcharges, which increase total freight rates and transport costs. EU-China trade has become more important, which account for around 1/3 of world merchandise trade in 2007. Since 2006, is China EU’s largest supplier of (manufactured) goods, while EU is China’s largest export market. In 2000-2008, EU import growth of Chinese goods still increase particularly manufactured goods (95,9%), where as transport costs surge significantly. EU export growth is lesser, which results into widening trade deficits with China. However, EU trade deficit in goods is distorted by hidden EU firm’s participation via off shoring. Sourcing remain mainly within EU, but EU firms sourcing production to China increase. China’s real net added value in EU import is much lesser. Imbalanced EU-China trade leads to high share of EU empty container transport (52,7%) and POR (42,3%) back to China. The result is higher freight rate in westbound direction to cover up return costs of empty containers in eastbound direction. EU total imported goods average value/ton is higher than exported goods, respectively €2.363 and €1.853. In top 20 world container ports for the period 2003-2008, Chinese ports growth is higher than EU ports. We explain that China as world factory has net advantage, which replace all across global sea transportation. I research the relation between oil price and EU imported Chinese goods and inward container transport. Despite higher transport costs EU and POR inward container transport in TEU still grows at a lower pace. Empty share in inward container transport declines significantly. However, imported goods measured in value increase while in quantity declines. Stronger euro against dollar and yuan slightly reduce oil price influence on transport costs and EU imported goods from China. Oil price has a positive relation with Asia-EU freight rate (R²= 0,5), total goods in value (R²= 0,69), EU total inward container transport in TEU (R²= 0,55), POR total inward container transport in TEU (R²= 0,80), dollar depreciation against euro (R²= 0,72). Yuan depreciation against Euro has a positive relation with EU imported total Chinese goods (R²= 0,46). Oil price has a positive, but no negative causal correlation with EU imported goods from China. Higher oil prices and transport costs should diminish EU imported goods, but China’s competitive production stimulates its export and eventually higher oil prices than in the origin. Additionally, shipping lines flexible reaction to oil prices leads to downward pressure on transport costs. After all, China’s currency policy keeps Chinese goods artificially cheaper. Future outlook for EU-China trade and maritime transportation is positive with an expected modest oil price increase to $100 in 2020. Enterprises in manufacturing and shipping lines can gradually adjust their production and transportation strategies to growing oil prices. China’s shift to green and more high tech goods in the value chain will heighten export goods value, which is lesser venerable for transport costs increase. More EU firms shift high value production to China due to promising huge domestic market will keep EU export growth relative lower and even heighten future trade deficits with China. Moreover, vessel and TEU capacity oversupply based on order book up to 2011 keep freight rate temporary low.