Archives for posts with tag: sea trade

The vast majority of the world’s trade in goods is moved by sea, and it has long been recognised how shipping is a critical element of the global economy, providing the connection between producers and consumers all over the planet. However, what is less frequently mentioned is the tremendous ‘value for money’ with which it does so; this is clearly worth a closer look…

Bargain Of The Century?

One US dollar doesn’t get you much in today’s world. On the basis of latest prices it would buy 0.025 grams of gold or 2% of a barrel of crude oil. Based on Walmart’s latest online pricing it would buy about half a litre of milk. That’s not a lot whichever way you look at it, in a world economy that is 75 trillion dollars large. But in shipping one dollar still gets you something very substantial. One way of looking at this is to take the movement of cargo in tonne-mile terms and divide it by the estimated value of the fleet. Here, to try to do this in like-for-like terms, the calculation includes crude and oil products, dry bulk, container and gas trade, and the ships that primarily carry those cargoes. On this basis, one dollar of ‘world fleet value’ at the start of May 2017 would have bought 110 tonne-miles in a year, based on 2017 trade projections. What an amazing bargain! One tonne of cargo moved more than 100 miles, per year, all for one little greenback!

What’s In A Number?

What drives this number? Well the essence of the value of course lies in the huge economies of scale generated by moving cargo by sea in vast quantities at one time over significant distances. The average haul of one tonne in the scope of the cargoes listed above is estimated at 5,016 miles and the average ship size at 58,706 dwt. Of course the amount of tonne-miles per dollar can vary over time, depending on changes in asset market conditions, the underlying cost and complexity of building ships and vessel productivity, speed and utilisation (rates of fleet and trade growth aren’t perfectly aligned most of the time). Across sectors the statistics can vary significantly too.

Buy In Bulk

One dollar of bulkcarrier and oil tanker tonnage accounts for 154 and 101 tonne-miles of trade per year respectively. For more complex, expensive ships the figure is lower: 20 for gas carriers. For boxships, despite their higher speed, the figure stands at 114. Vessel size (economies of scale in building) and cargo density (this analysis is in tonnes) play a role too in these relative statistics (which also don’t always capture the full range of cargo carried by each ship type).

Value For All Time

Nevertheless, whatever the precise numbers and changes over time, 110 tonne miles of trade each year for one dollar of asset expenditure just sounds like mighty good value at a time when a dollar doesn’t go very far. This underpins shipping’s ability to carry an estimated 84% of the world’s trade in tonnes and act as the glue holding the globalised economy together. Shipping’s famous volatility retains the ability to make and lose fortunes for asset players but the underlying economic contribution of each dollar invested may just be one of the greatest bargains of all time. Have a nice day.

SIW1274

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As Norway celebrates 50 years of Nor-Shipping, it’s a good time to think about where shipping might be in another 50 years. In 1965 several shipping innovations were becoming reality. The first VLCC was near completion, Malcolm MacLean was finalising arrangements for the first transatlantic container service, Japan was emerging as the leading shipbuilding nation and sea trade was 1.7 billion tonnes.

Amazing Performance

When we look at the growth of sea trade since 1965, two things are apparent. The first is the speed of growth, as sea trade grew faster than the world economy. Between 1950 and 2015 world GDP grew by 3.7% per annum, but sea trade grew by 4.7%. Trade is now almost 11 billion tonnes a year, which works out at around 1.5 tonnes of imports for every man, woman and child in the world.

The second point is the bumpy trajectory (see graph). There was a spell in the 1970s and 1980s when trade did not increase significantly for a decade, thanks to a deep recession in the world economy and a sharp decline in the volume of oil traded by sea. This is a timely reminder that the shipping industry operates in a volatile environment.

The Next 50 Years

Looking ahead, the shipping industry faces a daunting task. One problem is judging how fast trade will grow. If global sea trade just increases in line with growth in population, which is heading for 10 billion in 2065, imports would reach 15 billion tonnes in that year (Scenario 1). But the imports per capita trend trebled from 0.5 tonnes per person in 1965 to an estimated 1.5 tonnes in 2015. If the upward trend continues, imports might reach 2.2 tonnes per capita by 2065 and trade 22 billion tonnes (Scenario 2). But today although the OECD countries import around 4 tonnes per capita, non-OECD imports are around 1t per capita. If they were to reach OECD levels, global sea trade would hit a total of 37 billion tonnes in 2065 (Scenario 3). Bewildering Forecast Range

So in 50 years’ time trade could be anything between 15 and 37 billion tonnes. And there are other scenarios, for example the phasing out of fossil fuels which could radically alter even this wide range. In terms of investment, on a very rough calculation, this means the industry could be spending between $1.5 and $4.5 trillion on new ships over the 50 years at today’s prices. How will shipping handle this? Since 1965 the focus has been on bigger ships, tight overheads, and an aggressive market offering little reward for innovative investment. But as the non-OECD driven world develops, with tougher targets for fuel and emissions, changes will be needed, and maybe a rethink.

Maritime Magic Carpet

So, if shipping is to play as big a part in the global economy in the next 50 years as it did in the last, it needs a new injection of maritime magic. The digital revolution, now global, offers shipping companies a unique opportunity to integrate the management of their high cost assets, improving productivity and offering new ways to manage them that tighten up the whole transport chain. Who knows, maybe that’s just the magic that’s needed. Have a nice day.

SIW1174