“Bracing For Impact” – China Shock To Strike Germany’s Largest Port In Days, As Trade Volumes Collapse 40%

The worst-case coronavirus scenario is now being realized for German ports, as collapsing trade volumes from China could push Europe’s largest economy into recession. 

For the last three weeks, global markets have been obsessed with economic paralysis that is quickly spreading across Asia, Europe, and the Americas. An economic shock combined with a virus outbreak is what triggered a macro matters moment for investors, who sold first and are asking questions later, as it appears a global trade recession could be on the horizon. 

The port of Hamburg, Germany’s largest trading hub, reported a 40% plunge in trade volumes for February. The weakness was a combination of the Chinese New Year festivities and the onset of economic shocks triggered by the virus shutting down two-thirds of China’s economy.

Axel Mattern, CEO of the Port of Hamburg Marketing, told Reuters that German ports are bracing for a continuation of declining trade volumes in the days and weeks ahead. The cause of this weakness is purely coronavirus disruptions that caused China’s economy to collapse. 

“We’re currently bracing for the impact. It will hit us with full force from mid-March,” Mattern said, adding that “the entire supply chains have been thrown completely off balance…we expect container volumes to drop sharply due to the coronavirus.” 

What’s troubling is that at least a quarter of Hamburg’s trade volumes in 2019 originated from China. This could suggest that Germany’s economy is highly exposed to foreign shocks, with limited buffers to cushion the blow. 

“And this period of weakness has now been extended due to the coronavirus – and there is no end in sight. Nobody can say how long this weak phase will last,” Mattern said.

The trade and supply chain shock is expected to tilt Germany into recession for the first half of the year. Chancellor Angela Merkel is running out of options on how to stimulate the economy.

Merkel has signaled that she is ‘open’ to suspending Germany’s ‘zero-deficit rule’ – better known as the ‘debt break’ – to bolster the fight against the coronavirus.

The shock was not a black swan, but rather a black bat in Wuhan, which is turning out to be one of the biggest economic shocks in decades to strike the global economy. Now the shock has infected global supply chains and traveling towards Western countries. 

We noted last week that the Port of Los Angeles, the busiest seaport not only in the US but in the entire Western hemisphere, is also bracing for a “substantial hit” in trade volumes from China.

Mattern pointed out bright spots are developing in China as some businesses have increased output but far away from full capacity. 

“What we hear from on site in Shanghai is that there are first signs of normalisation. In Shanghai, more than 50% of employees now go to work. But then again, this also shows that we’re still a long way from normal and a ‘business as usual’.”

German Economy Minister Peter Altmaier said the shock is expected to hit Germany’s industrial sector over the next few weeks.

Shipping giant Maersk warned last month that containerized flows across the world would likely stay muted in the first half. 

“As factories in China are closed for longer than usual in connection with the Chinese New Year as a result of the COVID-19, we expect a weak start of the year,” Maersk warned. 

Reuters noted that the decline in trade volume between China and Germany has led to a shipping container shortage in the country.

“I have just spoken to an important customer from the greater Hamburg area. They just can’t get hold of containers anymore,” Mattern said. “If you currently want to ship a container, you have to expect higher prices.”

Duisburg, Europe’s biggest inland port, has warned rail volumes from China have been reduced, and will likely remain in a slump for the first half.

To sum up, the bat shock from Wuhan has taken a little more than a month to reach Europe and could start hitting Germany’s industrial base this week, if not next. This all suggests that twin shocks are about to strike Europe’s largest economy, one being an industrial shock from China, and the other being a demand shock in services, as tens of millions of people in Europe avoid public areas as virus cases and deaths erupt on the continent. Europe is the new China; its economy is set to crash.