Archives for posts with tag: seaborne

While the expanding role of Asia (especially China, see SIW 1132) in seaborne trade has grabbed headlines in recent years, developments in the US, still the world’s largest economy, have also had a significant impact. In a short space of time, changes in the US energy sector have dramatically altered global trading patterns in a number of commodities, significantly impacting the pattern of volume growth.

Putting On A Spurt Of Energy

For much of the last three decades, US oil production has been in decline, falling on average by 1% a year since 1980 to a low of 6.8m bpd in 2008. Yet technological advances have since led to huge gains in exploitation of ‘unconventional’ oil and gas shale reserves. In the space of just six years, the US managed to raise oil output alone by an astonishing 60% to almost 11m bpd, a new record.

Making An Oil Change

This has led to huge changes in US energy usage and import requirements. Crude oil imports have almost halved since 2005, and since 2010 have fallen on average by 11% p.a. to 260mt last year. Exports of crude oil from West Africa in particular have had to find a home elsewhere (unsurprisingly, many shipments now go East). Since US crude exports are still banned, US refiners have taken advantage of greater domestic crude supply to produce high volumes of oil products, especially for shipment to Latin America and Europe. Lower US oil demand since the economic downturn has also contributed, and seaborne product exports reached 120mt in 2013, up from 70mt in 2009. Alongside global shifts in the location of refinery capacity and oil demand growth, these trends have transformed seaborne oil trade patterns.

The impact could be similarly profound in the gas sector. As US imports of gas, mostly LNG, have dropped (on average by 34% per year since 2010), plans to add up to nearly 100mtpa of liquefaction capacity by 2020 could mean the US eventually emerges as a major LNG exporter, potentially accounting for 15% of global capacity (from 0.5% currently). Meanwhile, LPG shipments are continuing to accelerate strongly, rising by more than 60% y-o-y so far in 2014 to 6mt.

Miners Under Pressure

There has also been an impact in the dry bulk sector. Lower domestic gas prices have pushed the share of coal in US energy use to below 20%, leaving miners with excess coal supplies. US steam coal exports jumped to 48mt in 2012 from 11mt in 2009, contributing to lower global coal prices (cutting mining margins) and higher Asian import demand.

So What Next?

So the effects of the changing balance in the US energy sector have been far-reaching, and there remains scope for more shifts to occur as trade patterns continue to adjust to changes in commodity supply and prices. While the firm pace of expansion in US oil and gas output may start to slow, any change to existing export policies could have further impact. What is clear already, in terms of seaborne trade growth, is that the focus has shifted away from US imports, for decades a key driver of the expansion of global volumes, towards the country’s developing role as an energy exporter.

SIW1135

How fast will ship demand grow? It’s the ultimate question for serious shipping investors. Today’s global economy relies on owners stepping up to invest in the ships that will be needed in the future ($115 billion was invested in new contracts last year). With so much cash on the table, the future trade growth issue cannot be ignored. But it’s tricky and even experienced analysts fall back on “rules of thumb”.

Faster Than World GDP

When they worry about the future most shipping investors have the world economy at the back of their minds. But although world GDP is the obvious starting point for analysing sea transport, the relationship between the world economy and seaborne trade growth needs handling with care. Unfortunately things do not always turn out the way investors expect.

For example, over the 50 years since 1963 these two key ship demand variables have increased by a not too dissimilar amount. GDP grew on average at 3.7% p.a. and sea trade grew at 4.5% pa. Overall trade volume increased 722% and GDP by 501%. If the relationship had been steady, the ratio of trade to GDP would have followed the path shown by the dotted line on the graph, moving steadily up from 100% in 1963 to 137% in 2013 (i.e. the sea trade index 37% higher than the GDP index, both of which were 100 in 1963). Interestingly today’s GDP forecasts are close to the 50 year trend, with projected growth of 3.6% in 2014 and 3.9% in 2015. So does that mean about 4.5% trade growth?

Sea Trade Multiplier?

That’s not always how things happen. The red line shows that the “sea trade multiplier”, which compares the cumulative year by year growth in the sea trade and GDP indices since 1963, was all over the shop. In the 1960s trade shot ahead of GDP and the multiplier reached 160% in 1974. Then the relationship reversed and in the period 1980-88 sea trade growth averaged only 0.4% pa compared with 3.2% pa for GDP. Again in 2005-09 trade lost ground as GDP growth averaged 3.5% pa and trade only 2.4%.

Structural Changes

This analysis suggests that when looking ahead more than a year or two, the structural changes that lie ahead are more interesting than the trend. The 1960s boom was driven by the OECD countries adjusting to global free trade by importing massive quantities of bulk commodities like iron ore and oil. Then the trade collapse in the 1980s was a structural response to high oil prices. And the trade slowdown in the late 2000s shows that the slowing OECD economies (less growth and more services) were important enough to shave the top off the Chinese mega-boom.

Brave New World

So, demand trends are all very well, but structural changes may matter more. Today high energy prices are squeezing the oil trade and the non-OECD world, which is increasingly important, seems to be moving into a different phase of growth. Although the 4.5% trade growth “multiplier” scenario looks convincing, remember that it is during structural changes that shipping fortunes are often made and lost. Have a nice day.

SIW1120

Last week, we looked at which countries occupy the leading positions in terms of the supply side of shipping: that is, who owns all the ships. This week we follow-up by looking at which countries contribute the most to the demand side of the industry. Which countries account for the largest portions of global demand for shipping? And which countries are punching above their weight?

Key Trade Players

In total, world seaborne trade is estimated to have reached just under 10 billion tonnes in 2013. Bulk cargo trades in dry bulks, liquid bulks and gases represented 85% of this total, or a massive 8.4 billion tonnes. Overall, world trade has grown at an average rate of 3.8% since 2000. The Graphs of the Week show which countries have contributed to this, and now have the largest shares of 2013 bulk trade by sea.

China Wins, Of Course…

It will come as no surprise to anyone that China is the country with the largest portion of overall seaborne bulk trade, with a 13% share of the total. China’s imports (a massive 1.8 billion tonnes) represented 23% of global imports in 2013, including nearly 800mt of iron ore, 286mt of crude and products and 308mt of coal. Of course, China has a much lower (2%) share of those commodities’ global exports. On the other hand, its containerised exports represent around 25% of global trade in TEU terms.

The ten countries shown on the graph account for just over 50% of the world’s seaborne imports and exports of bulk cargoes, meaning that, given that there are in excess of 250 countries globally, world bulk trade is quite consolidated around a relatively small number of countries. Indeed, the top three countries account for more than 25% of the total.

No EU countries feature in the top 10 countries, demonstrating the impact of the rise of developing Asia. Then again, if considered en bloc, the EU has 14% of world seaborne bulk trade: exceeding even China, although not by much.

Using their Chance?

So, what about those countries punching above their weight? Excluding island microstates, the country with the largest ratio of trade to population is Qatar, with 94 tonnes of trade per capita. Qatar is the world’s largest gas exporter, with 33% of world LNG trade and 16% share in LPG. Other countries high on this ranking include several other Gulf states, and the sparsely-populated raw materials export giant that is Australia. However, in 2nd place is Singapore, which imports more bulk cargoes than it exports, given its status as an oil refining hub. China is just 127th place for trade per capita, while India is 181st.

Overall, the graphs confirm the importance of a list of countries which will be well known to all involved in global shipping. At the heart of world trade are a group of big raw materials exporters, along with the consumption-driven states of the developed world, plus major developing economies. All four of the key BRIC developing countries feature on the graph. Many of the so-called VISTA countries feature in the next 20 countries not shown: could they soon begin to move up the table?

SIW1120

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!

SIW1084It has been well documented that for the last few decades container trade has been one of the fastest growing parts of world seaborne trade. In tonnage terms it has grown from an estimated 237 million tonnes in 1990 to 1.5 billion tonnes in 2012, increasing its share of global seaborne trade from 6% to 15%. Like any emerging phenomenon the early years of containerization were marked by rapid growth, following the inaugural voyage of the Ideal-X in 1956.

Great Expectations

The next question was how long it would take the industry to mature and what growth rates could be ex-pected in each phase. We now have plenty of data to examine the progression. The graph shows the historical growth rate of container trade back to 1974, based on estimated ‘A to B’ trade from 1997 onwards and global container ports lifts (a useful available proxy) prior to that. It also shows the growth rate of the volume of world trade in goods (not just those in containers) back to 1980.

Early Growth Phase

The 70s and 80s were really still part of the early phase, and the conversion of the carriage of goods from general cargo to containers sustained rapid growth. In the 70s/80s the average annual growth rate in box volumes stood at 11.7%, and in the 80s the average rate was more than double that of world goods trade.

By the 90s, although many commodities had been container-ised, the trend continued and equally importantly the commodi-ties forming the bedrock of box cargo were representative of the fastest growing part of world trade (i.e. manufactures). In the 90s the average growth rate stood at 9.3%.
Phasing East

In the 2000s the pace of the growth was bolstered by a key trend – the outsourcing of production from developed to developing economies, notably from the US and Europe to China. As western companies rushed to set up shop in or source production from Asia, this boosted volume growth. In the 2000s average box trade growth stood at 7.8%, but prior to the downturn in 2008 it was 10.3%, 1.4 times the growth in world goods trade. The average rate in the 2010s so far has slowed (7.0%) on the back of the downturn, but not (yet) quite as heavily as some expected.

That’s A Lot of Boxes

What’s next? For a new transporta-tion technology, 57 years old is still young, and there’s still non-containerized general cargo out there. But the outsourcing boom and the peak of containerization have passed, and a betting man might expect growth to mature to 5-6% pa in the next decade. Though it’s hard to predict precisely, a lot of capacity will likely be required. Boom period deliveries have ranged between 1.0 and 1.5m teu, but with today’s fleet and orderbook totalling 20m teu, 6% pa growth would soon require 1.2m teu of extra capacity every year just to keep up, before the replacement of old and obsolete tonnage. That’s a lot of food for thought for the shipping industry’s builders and financiers.