Japan Freight Transport Report Q2 2012

At the end of Q112, there was good news and bad news in Japan's macroeconomic story. The good news is that BMI believes the country's economy will grow in 2012, after the contraction experienced in 2011; a year deeply marked by the earthquake and tsunami that struck in March 2011. The bad news is that believe that the post-earthquake recovery process has lost momentum, hit by a combination of a weaker Chinese economy, the eurozone crisis, and the disruptive floods in Thailand, which have had an impact on Japan's manufacturing supply chain.
The result is a mixed bag for the freight transport sector. Despite sluggish exports, activity at the country's main ports will continue to grow at above-GDP rates. Changes in Japan's energy consumption patterns may also be creating some niche opportunities - such as growing demand for the services of LNG tankers. Air freight volumes are also set to expand at a faster rate than the economy, despite increasing competition ahead for the conventional carriers, as budget airlines make their long-delayed appearance on domestic routes. Road and rail freight, on the other hand, is set to lag behind GDP, with growth rates of less than 1%.
Headline Industry Data
.. Air freight tonnes 2012 forecast to grow 1.9%, with average year-on-year (y-o-y) growth of 2.6% during our forecast period.
.. Road freight tonnes 2012 forecast to grow 0.4%, with average annual growth of 0.3% to 2016.
.. Rail freight tonnes 2012 forecast to grow 0.3%, with average annual growth of 0.5% during our forecast period.
.. Port of Tokyo 2012 tonnage throughput forecast to grow 2.5%, with average y-o-y growth of 2.8% during our forecast period to 2016.
.. Port of Nagoya 2012 tonnage throughput forecast to grow 4.5%, with average y-o-y growth of 4.8% over the medium term.
Key Trends and Developments Maersk And BSNF Offer Ship And Rail Route To The US
Danish shipper Maersk Line and BSNF Railway, a US subsidiary of Warren Buffett's Berkshire Hathaway, have announced 'Flagship' - a sea and rail carrier service connecting Asia with the US. It will carry freight from China via South Korea, Japan, Malaysia and Vietnam to reach Chicago, Dallas-Fort Worth, Houston, Memphis and Ohio before reaching the Port of Los Angeles.
Post Fukushima, Big Changes In Japanese Tanker Business
An analysis by BMI suggests that in the wake of the Fukushima earthquake in March 2011, the Japanese tanker sector is undergoing significant structural changes. The country's energy imports are shifting in favour of LNG; new European sanctions against Iran have made it more difficult to insure crude oil tanker shipments from that country, so that too pushes Japan towards greater diversification of its energy import needs. We suggest Japan may end up importing more coal and LNG from new suppliers, such as Mozambique.
Possible Four-Party Sea And Rail Cooperation
Representatives from China, Japan, South Korea and Russia have been discussing a package of agreements to better integrate shipping and rail links between them. Officials say the aim is to improve efficiency, trim expenses and encourage trade contacts, as well as boost the region's competitiveness in the international market. All the four partners say they will seek to promote enterprises so as to carry out rail and water transport projects.
Risks To Outlook
The most probable downside risk to our freight forecasts continues to liw in from the possibility of another collapse in external demand as seen in the height of the global financial crisis. This would come at a time of weak domestic demand. If both external demand and domestic demand fell sharply, the impact on Japan's freight sectors would be highly negative.
A second risk is less probable, but more dangerous for the industry. The popularity of the ruling Democratic Party of Japan (DPJ) has begun to enter the 'danger zone' (under 30% approval), and the main opposition Liberal Democratic Party (LDP) is not faring much better. Against this political background, BMI remains unconvinced that the Tokyo authorities have brought the fiscal situation under control. As we put it in a recent analysis of the macroeconomic situation, it is still not guaranteed that 'the authorities will be able to put the fiscal house in order without some sort of credit event'. A default of some type would be a major and negative 'confidence shock', likely to trigger a return to recession.