World—Trade rebound challenged by virus risks, shipping costs

World trade rebounded to pre-pandemic levels in November 2020, up 1.2% relative to December 2019. After a difficult first half, rising demand for imports in advanced economies and growing exports from China fuelled an expansion in global trade in the second half of last year (Chart). Though, trade in emerging markets in Asia (outside of China), Europe, Latin America and Africa are still yet to reach their December 2019 level. Australia posted a record trade surplus in 2020, though that reflected a faster decline in imports than exports.

Notwithstanding the positive end to 2020, global trade will face further challenges in 2021. First, a rise in COVID-19 cases (particularly variants) in several major economies has prompted additional lockdowns and restrictions on activity. Second, rising shipping costs and a shortage of empty containers at Asian ports is constraining trade. This reflects surging demand for Chinese-made consumer goods as economies reopen and household spending shifts from services like travel. Since November, the cost of shipping a 40-foot container from Asia to Europe has risen more than four-fold. The price of shipping goods from North America to Asia has tripled.

Australian exporters also face increased shipping costs for bulk and containerised trade. In particular, shortages of food-grade containers and delays in destination ports have cut the shelf-life of agricultural products. Importers are facing issues related to port congestion and a build-up of empty containers, adding to costs of doing business. Meanwhile, no material recovery is expected in Australia’s services exports until international travel restrictions are eased. Trade tensions with China are an additional headwind for some commodities exporters, while further strengthening of the Australian dollar against the US dollar in 2021 could dampen export competitiveness. Partly offsetting these headwinds are resilient Australian resources exports—particularly iron ore, copper and gold.