Archives for category: global seaborne trade

By the late 1800s, the shipping industry had been transformed by the introduction of steam power and iron ships. Coal and grain were two of the most important cargoes, alongside timber, sugar, cotton and tea. While technology, the sheer scale of the business, and the global cargo mix, have of course all changed since then, dry bulk cargoes have retained a position at the heart of global seaborne trade.

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World seaborne trade, whilst still growing at a relatively steady pace, has seen a slightly less rapid rate of growth since 2015, compared to both the longer-term historical average, and the more recent 2011-14 period. Economists have spent a lot of time sifting through the factors that might be the drivers behind changes in trade growth. What might a look at more detailed seaborne trends add to the argument?

So, What’s The Argument?

One element of the debate has been whether the slowdown in the rate of trade growth, or at least the apparent reduction of the multiplier over global GDP growth (the so-called ‘trade beta’), has been the result of structural shifts in the emerging economies or if it is more closely related to the current sluggish performance of developed economies. Theorists suggest that the former would have a longer-term dampening effect on trade growth, whilst the latter would indicate something, that whilst still a highly negative impact, may improve with time.

Seaborne trade data could help to shine some light on the argument. The red line on the graph shows the 3mma of y-o-y growth in a basket of imports to developing nations (see notes). In 2014, imports rose 7.4%, but growth slowed to 0.5% in 2015 with China’s coal imports falling and iron ore imports growing more slowly. But China’s imports are far from stuck in the doldrums, and growth in the developing world imports featured here has bounced back to a robust 6.3% so far this year. On this basis, even with China’s economy maturing, it does not seem that trade into developing economies is settling into a period of uninterrupted weaker growth.

Gone West?

But what about the western world? Well, trends in North American and European consumer imports could be a useful indicator. Growth in container trade into Europe and North America averaged 4.5% in 2014, but slowed to 2.1% in 2015, with European imports falling. In 2016 so far, growth has picked up slightly (to 2.9%), but has still been fairly moderate. Maybe this supports the view that the more notable brake on trade growth is from soft developed world demand rather than sustained shifts in the developing world?

Wider Trends

But, in reality, there are other trends in seaborne trade to take into account. For instance, growth in the energy and construction industries in some developed nations has been subdued, and European coal and iron ore imports have fallen. Box trade into some developing nations has come under pressure from low commodity prices. Supply disruptions in exporting nations have also impacted trade, especially in crude oil and minor bulks.

So, global trade growth is not in its prime, and there is debate over the relative impact of developed and developing world trends and their implications for the longer-term. At a glance, seaborne trade data might seem to point towards a bigger issue with western demand than with developing world imports. This is still painful, but the cycle might turn. But seaborne trade highlights that there are a range of other factors at play too. As ever, it is not simple, but as usual seaborne trade trends tell us something about the big debates. Have a nice day.

SIW1248

Shipping plays a major role in the world’s industries, facilitating the transport of large volumes of raw and processed materials. However, the maritime sector forms a much more important part of the global supply chain for some commodities and industries than others. Comparing world seaborne trade in a range of cargoes to global production helps to make this abundantly clear.

Still In The Limelight

Looking at a range of cargo types (see graph), less than 50% of global production of each was shipped by sea in 2015, with a significant share of output consumed domestically. However, seaborne transport still accounts for a sizeable proportion of many of these cargoes, and a wide range of factors influence the level of dependence on shipping of each.

Compelling Cues

One obvious driver is the location of production and consumption. Crude oil is the commodity most reliant on shipping, with some 46% of crude output last year exported by sea, with oil output concentrated in a relatively small number of countries. Similarly, around 41% of global iron ore production was shipped last year, with limited domestic demand in key producers Australia and Brazil. Absolute and relative regional productivity also has an influence. Just 15% of coal output was shipped in 2015, with half of the 6.5bt of coal produced globally last year output in China, nearly all of which was consumed domestically. Still, China was the second largest coal importer in 2015, with regional coal price arbitrages driving trade.

Another key factor is the availability and efficiency of other transport modes. Twice as much natural gas is exported via pipeline than in a liquefied state by sea, with just 9% of natural gas output in 2015 shipped as LNG. Meanwhile, the level of processing of materials also has an impact. Oil and steel products are less reliant on shipping than crude oil and iron ore, with refineries and steel mills often built to service domestic demand.

Raising The Drama

However, the growth of ‘refining hubs’ has raised the share of refinery throughput shipped by almost 10 percentage points since 2000. This kind of trend is an important driver of shipping demand. The share of output of the featured commodities shipped rose from an estimated 22% in 2000 to 26% in 2015, generating c.720mt of extra trade. This equates to an additional 1% p.a. of trade growth, boosting trade expansion to a CAGR of 3.7% in 2000-15. Trade in some cargoes is more sensitive to shifts in the share of output shipped than others, but across the featured cargoes, a further change of 0.5% in the share of output shipped could create another 130mt of trade, 2% of current seaborne volumes.

No Sign Of Stage Fright

So, while trade in even the cargo most reliant on shipping accounts for less than half of global output, the world economy today is still dependent on the seaborne transport of 11bt of all cargo types. Overall growth in production and the distance to consumers are also clearly important demand drivers for shipping, but for the world’s industries there’s no denying the main part that shipping still plays in the supply of raw materials. Have a nice day!

SIW1243 Graph of the Week

Back in the past the gas shipping sectors may have been considered relatively niche within the world of global shipping. However, in the last two decades they have been amongst the faster growing parts of the industry. This week’s Analysis takes a look at how shipping’s ‘coolest’ sector has grown in prominence to become part of the mainstream, and some of the ups and downs along the way.

Keeping Cool

Gas (LNG and LPG) shipping may once have been considered by some as a relatively niche part of global shipping, with the fleet and trade volumes dwarfed by other sectors. Even today, LNG and LPG carriers account for just 5% of total world fleet GT, and LNG and LPG trade accounted for just 3% of global seaborne volumes in 2015. However, following phases of rapid fleet growth, the combined gas carrier fleet now stands poised to top 100 million cbm of gas carrying capacity next year, more than double the size of the fleet at the end of 2007.

Gas Expands

Following expansion in LNG trade in the late 1990s, in the mid-2000s a glut of new export terminal sanctioning led to a surge in LNG carrier contracting, peaking at 10.9m cbm in 2004. This supported average fleet growth of 15% p.a. in the period 2000-08, to 40.3m cbm at the end of 2008. In comparison the LPG carrier fleet grew more steadily, though trade growth was supported by increased export volumes from the Middle East and Europe. Between 2000 and 2008, LPG carrier capacity increased from 13m cbm to 18m cbm, at an average rate of growth of 4% p.a. Across this period combined gas carrier capacity grew by an average of 10% p.a. to total 58.2m cbm by the end of 2008. However, after the economic downturn, sanctioning of liquefaction projects slowed, which limited LNG fleet growth, and growth in the LPG sector slowed too. Between 2008 and 2014, combined gas carrier fleet capacity grew by a much less rapid 6% p.a. on average, with even slower growth in 2011-12.

Powering On

Nevertheless, since the start of 2015 it has been full steam ahead for the gas carrier fleet. With LNG carrier ordering backed by the return to liquefaction terminal sanctioning in the 2010s and the vision of a cleaner energy future, and LPG carrier demand supported by the advent of fracking in the US and refinery capacity expansion elsewhere, 26.1m cbm of combined gas carrier capacity was ordered in 2013-15. This has supported rapid fleet growth in recent years and since the end of 2014, LPG carrier fleet capacity has grown by 32% and LNG carrier fleet capacity by 12%.

Mainstream Profile

So, the gas sector’s profile is fully in the mainstream today, and despite it’s relatively limited share of the world’s tonnage and global seaborne trade, in other ways it accounts for rather more weight. Gas carriers are complex, high value units; they account for 15% of the shipyard orderbook in CGT (shipyard work) terms today, and for an estimated value of $78bn, 9% of the world fleet total. And with a 20-year compound annual growth rate of 8% in combined capacity, and the 100 million cbm mark just around the corner, surely that’s one of modern shipping’s success stories? Have a nice day.

SIW1241 Graph of the Week