Archives for posts with tag: container trade

Across the spectrum of seaborne trade, crude oil and containers could hardly be more different. The former is the classic raw material commodity, whilst the latter represents the shipping of all sorts of manufactured end products. Yet in 2017, total seaborne trade in each stood less than 170 million tonnes apart, with a combined volume of 3.8 billion tonnes accounting for 33% of overall global seaborne trade.

For the full version of this article, please go to Shipping Intelligence Network.

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In the nativity story, the three ‘Wise Men’ each come bearing a gift for the baby Jesus. Today, gifts are more likely to have been transported by containership than by camel, but the boxship market itself has still been subject to a number of demand-side ‘humps’ this year. Unwrapping these trends suggests three rather unwelcome ‘gifts’ that the containership market has received in 2015.

Gifts From The East

Prior to the last 7 years, container trade growth had been rapid, averaging 9.6% per annum in 1996 to 2007 – an astonishing performance given the average 4.1% per annum expansion in global seaborne trade in the same period. Box trade flourished, as further cargoes were containerised and manufacturing was rapidly outsourced from the west to Asia (particularly in the 2000s). Container shipping became the planet’s chosen (low cost) way for moving general cargo around. The first major blip in the story was in 2009, when box trade fell for the first time in the history of containerisation, dropping 10% on the back of the global economic downturn. 2015 currently looks set to be the worst year since then, with trade growth expected to reach just 2.5%.

Hardly Gold

Three key factors have driven slower trade growth this year. The first is the contraction of the key Far East-Europe trade, reflecting a combination of the weak euro, continued challenging economic conditions in some European nations, and a stark fall in Russian volumes. It seems that this year has also seen some inventory de-stocking, bolstering the downward trend. Peak leg Far East-Europe trade is projected to drop by 3.8% in 2015, limiting total expansion in mainlane trade to around 0.4% this year.

The second factor has been the slowdown in the estimated rate of growth in intra-Asian volumes. This is an important bloc of container trade (around 50m teu) and has been one of the fastest growing parts in recent years. This year, the turbulence and slowing rate of growth in the Chinese economy, combined with issues in other Asian economies, has seen the estimated rate of intra-Asian growth slow in 2015, with total intra-regional trade now projected to grow by 3.6% this year, down from 6.0% in 2014.

Looking Myrrh-ky

Thirdly, the collapse in commodity prices, including crude oil, has had a heavily deleterious impact on box volumes into economies particularly dependent on commodity exports for income. Notably, growth in box imports into economies in Africa and South America have slowed, and total North-South trade is now expected to grow by only 1.8% this year, whilst Middle Eastern imports are also coming under pressure.

Frankly Incensed

So the world of container trade has indeed received three ‘gifts’ this year, but the outcome for containership demand has not been a joyful story. The Christmas season is usually prime time for thoughts of presents shipped by container around the world, but it seems that the boxship sector may have to wait beyond this year’s festivities to find a brighter-looking star on the horizon.

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Eleven years ago in 2003, when China opened its doors and the steel boom got underway, the shipping community was suddenly presented with an ‘Aladdin’s Cave’ of cargo. Unlike Japan and Korea, China had not locked in the fleet of ships it would need. So the escalating imports of iron ore soon turned into a gold mine for shipping. With so much cargo and a limited fleet of ships, Capesize rates surged.

Unexpected Riches

Shipping has always done well out of “miracle” economies, but the Chinese growth surge which followed was special. In the next decade, Chinese industry, especially steelmaking, grew faster than anyone could possibly have predicted. In 2003 the Chinese government thought steel production would reach 300mt in 2010. Actual output in 2010 was 627mt. The effect on trade was profound. China’s seaborne imports quadrupled, reaching 2 billion tonnes in 2013, by far the most any country has ever imported in a year. The freight boom this triggered between 2003 and 2008 was also arguably the best in the industry’s history.

Even after the Credit Crisis in 2008, China kept expanding, with just one short-lived wobble in 2009. This growth helped cushion shipowners from a 1980s style meltdown that might otherwise have hit the bulk and container markets.

Unavoidable Evolution

But in the real world, economies move on and there are many signs that change is underway. China is a very big country, and some provinces are still poor, but across the economy activity is slowing. Industrial production growth fell to 6.9% year-on-year in August and the dollar value of export trade, which for many years grew at about 20-30% pa, only managed 8% in 2013.

The real change this year has been in steel and construction. Official statistics suggest that floor space under construction is down 17% year-on-year and house completion is down about 30% this year. Some Beijing analysts are predicting much lower house building over the next two years. Although iron ore imports are up by 18% year-on-year, steel production is only growing at 5%. Not a good omen. Meanwhile steel prices have slumped another 5-10% and steel exports are up 37%. All signs of market weakness.

Value-Added Production

Of course these trends could be cyclical, but China is a very different economy from 10 years ago. A new generation has grown up with computers, smartphones, cars, fashion and confidence. Environmental concern, which triggered the impending ban on high sulphur coal imports, illustrates the way these changes can trickle through into trade.

New Trend, Old Story

So there you have it. China’s sprint for growth is easing off and it is projected that imports will grow 5% this year. This is way below the 10-20% pa of the boom years. It happened to Japan and Europe in the 1960s and to South Korea in the 1980s and 1990s. So does that mean ‘Aladdin’s Cave’ is empty? Such a big cave with so many dark corners, makes it hard to say, but it’s a serious issue for investors. Have a nice day.

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SIW1113Every so often we reach milestones in shipping that are worth pausing to celebrate and in 2014 the industry will achieve the no mean feat of moving 10 billion tonnes of international seaborne trade across the world’s open seas. Our Graph of the Week illustrates the strong growth of the past thirty years, with trade doubling since 1995 and tripling since 1984. The graph also highlights another industry milestone reached back in 2002, when the world fleet first transported more than one tonne per person globally. With China fuelling growth (it is estimated that at least half of the 4bn tonnes added since was China-related), this ratio has surged to the current figure of 1.4 tonnes per person.

Winners & Losers

So what are the “winners” and “losers” in the period between our two trade “milestones”? Reminding us that it has been very much at the heart of globalisation and a strong growth story despite its current travails, container trade leads the way contributing nearly a quarter of all growth with 931m tonnes. Iron ore, with 815m tonnes, and coal with 605m tonnes, are less of a surprise (with Capesizes the main beneficiary) and indeed over 50% of all trade growth was dry bulk related. Elsewhere there have been good contributions from steel products, grain, oil products and LNG. Crude oil has been disappointing however with growth of only 250m tonnes over the period and its share of trade dropping to 18%. A few trades have shown no growth at all over the period, for example phosphate rock, with fertiliser processing increasingly taking place at source.

Wildcards

Trade forecasters have been caught out more than a few times in recent years with major surprises in each of the key markets. Back in 2002, general consensus on China grossly underestimated the development of the steel industry and related import levels, while the turnaround in the US energy balance has been just as surprising and is significantly impacting the oil and gas trades. Container trade meanwhile generally grew (prior to 2009) at a few % points higher than the long term forecasts from the early 2000s. Throw in the financial crisis, when trade contracted for the first time since 1983, as a further challenge.

Another Ten Billion?

So where next for trade? In the 1980s growth was a sluggish 1%, before more encouraging growth of 4% in the 1990s and again in the 2000s. Some things seem more predictable – it’s difficult to look past China, India and Other Asia providing the majority of regional growth in the medium term, while most observers would expect gas to grow above trend – but other issues are far more uncertain. At 4% growth (a number we don’t feel is unreasonable for scenario planning on the basis of continued globalisation) we reach 15 billion tonnes by 2024 and 20 billion tonnes by 2031. Of course with shipping moving 90% of all global trade, the physical world rarely plays out like a smooth line on a graph and it’s the “wildcards” that often have the largest impact!