Archives for posts with tag: trade growth

This year, the shipping industry is expected to transport 12bn tonnes of cargo. That’s double the volume shipped in 2000 and four times the trade in 1980; the result of economic growth and globalisation. Dry bulk and container trade were at the heart of this in the boom of the 2000s, but both over time and across sectors the seaborne trade growth environment continues to evolve.

 

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

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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.

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This week, containership fleet capacity has passed the 20 million TEU mark, another milestone in the rapid rise to prominence of the sector. Down the years, much of the capacity expansion has been driven by the delivery of larger and larger units at the big end of the fleet. However, the important role that smaller ‘feeder’ ships play in the container shipping network should never be overlooked.

Little And Large

Investment in containership newbuildings this year so far looks very different to the pattern seen in 2015. There was very limited investment in new boxships in 1H 2016, with just 75,000 TEU of capacity ordered compared to 2.2 million TEU in full year 2015. 1H 2016 saw 36 units contracted, and all were 3,300 TEU or below in size. This follows 104 orders for units below 3,000 TEU (‘Feeders’) in 2013, 85 in 2014 and 94 in 2015. This represents a limited, but steady flow of orders for small containerships, but, as the graph shows, the main focus in recent times has been elsewhere (especially in capacity terms). Only with a hiatus in the ordering of larger ships does the feeder element look particularly pronounced.

However, to casual observers, investment in feeder capacity might seem obviously warranted. The global liner network requires the integration of ships of all sizes, and clearly the focus of investment in recent years has been the big ships. Over 80% of capacity ordered since start 2010 has been for ships 8,000 TEU and above. But in reality it maybe hasn’t been hard to see why there has been a limited focus on investment in small and medium sized containerships. Timecharter earnings for smaller ships have languished at bottom of the cycle levels; the one year rate for a 1,700 TEU unit has averaged just $6,215/day since the end of 2008.

What’s Required?

Nevertheless, there appear to be clear drivers for future requirements. The orderbook below 3,000 TEU is limited, equivalent to 10% of fleet capacity compared to 33% above 8,000 TEU, and modern units are scarce. Demolition has picked up pace; 724 boxships have been sold for scrap since start 2012, about 70% of them below 3,000 TEU. And the feeder fleet has largely been shrinking since 2H 2011, with capacity below 3,000 TEU expected to see no real growth this year or next. Furthermore there are limits to network flexibility and the further cascading of larger ships into the feeder arena. The share of intra-regional deployment accounted for by ships 3,000 TEU and above has been fairly flat at just below 30% for some time. If extra intra-regional capacity is needed, that’s likely to mean demand for smaller units.

More On The Way?

So, it’s a broad landscape, and many market players foresee the likelihood of further activity in the feeder sector. Expectations remain of further limits to cascading and improved intra-regional trade growth (about 4% projected for intra-Asia in full year 2016). Improved charter rates, attractive pricing and available finance would help the investment case further, but the fundamentals for future requirement look supportive. Additional ordering has been on the agenda for a long while but things have taken their time. But in the box sector, sometimes the best things do (eventually) come in small packages.

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For good or for bad, shipping market analysts have looked at trade growth ‘multipliers’ for many years. In 2015 global seaborne trade is estimated to have grown by 2.1%, in a year when the world economy grew by 3.1%. As a result the ratio of trade growth to global GDP expansion dropped below 1.0. What do trends in this ‘multiplier’ mean for shipping in a wider context?

Multiple Storylines

Whilst hardly an advisable way to project trade growth for a specific year (year to year the statistics are notoriously volatile), examining the ratio between world seaborne trade growth and the expansion of world GDP (‘the multiplier’) over longer time periods tells us something about the key demand drivers in shipping. As the graph shows, in the period 1990-94 the multiplier averaged 1.3 and in 1995-2010 averaged 1.1.

There were a number of drivers behind this ‘top up’ effect. The increasingly globalised economy supported growth in world trade which benefitted seaborne traffic. In the 2000s, outsourcing of production from more mature regions to distant developing world locations and then shipping goods back to consumers also generated a multiplier effect, and speedy economic growth in China hoovered up raw material cargoes at a rapid rate (maintaining support for the multiplier above the diminishing long-term trend).

Boxes’ Big Top Up

Container trade is one specific area where the multiplier has come into very clear focus. Across 1995-2010 the ratio of container trade growth to world GDP expansion averaged a robust 2.3. Global trends and outsourcing supported this too, backed by other drivers. Trade in box-friendly manufactures was a fast growing part of overall trade, containerization of general cargoes continued to provide a boost, and multi-location component processing of manufactures became the norm in Asia, supported by wage differentials and cheap box shipping.

Looking For Support?

But these multipliers have been sliding. Across 2011-16 the seaborne trade multiplier averaged less than 1.0, and the box trade multiplier just 1.3. 2015 marked a particularly weak year, with the respective figures at 0.7 and 0.8. Something is missing from the drivers previously providing the top up to economic growth. World sea trade grew by just 2.1% last year; Chinese growth rates and raw material imports have slowed, outsourcing may have peaked, and containerization is more complete than not. Multipliers have slowed; nothing lasts forever and some of the old supports appear to be no longer there. The industry will be hoping that a golden age has not just passed by.

However whilst some drivers may have run their course, others are still going strong and 2015 might not be totally representative of the trend. The economy is as global as ever with ‘Factory Asia’ still at the centre of production supporting intra-regional activity. And might there still be huge potential to unlock? Developing world consumers account for 1.2 tonnes of seaborne imports per person, leaving them a long way to go to catch up with the developed world (3.1 tonnes). The shipping industry will be looking that way for its next top up. Have a nice day.

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Motoring terminology has always provided shipping analysts with a wide range of vocabulary to use when describing the car carrier sector. Last year demand growth appeared to have stalled, and the indicators suggest that there hasn’t been a significant acceleration this year. With the market improvements seen back in late 2013 now seemingly eroded, what are the signs on the road today?

Trade Growth Stalling

In some ways the signals are quite clear. The road has hardly been smooth for seaborne car trade in recent years. Volumes have yet to surpass the record level of an estimated 28.5m cars in 2007, with total trade in 2015 expected to total 26.7m cars. Trade fell by more than 30% in 2009, and while volumes have recovered to some extent, and increased by a helpful 4-6% per annum in 2011-13, growth in 2014 ground to a halt. Relocation of car production limited shipments from key Asian exporters, while imports into a number of key and emerging regions were affected by economic and political disruptions.

Similar trends have imposed a ‘speed limit’ on car trade growth this year, with volumes only on track to increase by around 1% in 2015. Strong car sales in the US and Europe have helped to drive some growth, but continued expansion of vehicle output close to major and developing demand centres, combined with economic difficulties significantly limiting imports into China, Brazil and Russia, has prevented further acceleration.

Down In A Low Gear

Meanwhile, growth in the PCC (Pure Car Carrier, including Pure Car & Truck Carrier) fleet has also decelerated in recent years, easing from 5% in capacity terms in 2013 to 2% in 2014. While the majority of car carriers operate under long-term agreements, the market is still impacted by supply and demand trends, and the slowdown in fleet growth appears, with demand looking lacklustre, to have been insufficient to prevent weaker fundamentals. Charter rates for a 6,500 ceu PCTC had improved in late 2013 and into 2014, topping $26,000/day in mid-2014. However they have since come under pressure and sentiment has become more negative during 2015.

Alternative Routes?

On the investment side, however, the indicators might be suggesting something else. Following limited ordering of new car carrier capacity in 2014, owners have put their foot down and in the first ten months of 2015 ordered units of 0.25m car equivalent capacity, more than in six of the last seven years. Replacement demand appears to have driven much of this, but there has been plenty of activity at the top end of the size range, so clearly some owners still think ‘big is beautiful’ and that the road ahead seems clear.

The Traffic Report

So, the car carrier sector may have hit a rather big jam. But down another road, there’s still plenty of traffic flow. Slow lane or fast, this all needs further examination, and each year, in our Car Carrier Trade & Transport report, we look at the trends in detail. This year’s report is available on the Shipping Intelligence Network now. Have a nice day.

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Like the big dipper at a fun fair, the shipping industry has its share of ups and downs. After a thrilling start to the century, rapid fleet growth and the financial crisis dampened the market. However, we are now seeing signs of a better balance between fleet expansion and trade growth.

All Aboard

The shipping rollercoaster has plenty of ups and downs, and one of the best ways of keeping track of the twists and turns is by looking at the balance between the growth in seaborne trade and growth in the fleet.

The Graph of the Week shows the development of fleet growth and trade over the most recent two 8-year periods. During the first phase (1999-2006 inclusive), fleet and trade growth broadly tracked each other, resulting in a competitive and, at times, prosperous market.

Trade growth started strongly at the turn of the century, prompting a “mini-boom” and giving shipping’s thrill-seekers a taste of things to come. After a couple of slower years in 2001-02 in the wake of the “dot-com crisis”, trade growth recovered and achieved a CAGR of 4.6% for the period as a whole. At the same time the fleet grew at 4.2% per annum – tracking demand growth but not exceeding it. The tight market conditions that characterised this first cycle of the century drove the shipping market to incredibly firm levels and, for some, the thrill of a lifetime.

Hold On Tight

During the second 8-year phase (2007-2014 inclusive) fleet growth has surged ahead of trade. For the first couple of years the market was strong enough to absorb the large number of new deliveries coming out of a rapidly expanding shipbuilding sector. However, in the wake of the global financial crisis, consistently higher fleet growth resulted in much weaker market conditions.
In 2009 global seaborne trade fell by 4.0%, compared to fleet growth of 7.1%. Trade made up some lost ground in 2010 when it grew by 9.6%, but with fleet growth hitting 9.5% that year and 8.8% in 2011, trade growth was unable to keep pace. Over the past 8 years as a whole, the fleet has grown by a CAGR of 6.5%, compared with trade growth of 3.5%.

Here We Go Again

Over the past two years deliveries have eased enough for fleet growth to fall back below 4% pa, and in 2014 trade growth is expected to exceed fleet growth for just the second time in over a decade (the other time being 2010 when trade was recovering from the financial crisis). As a result shipping markets are relatively tighter and faster to react to localised demand/supply imbalances. The last 9 months have seen spikes in bulker, tanker and gas carrier rates which have encouraged renewed interest in tonnage acquisition (both secondhand and more efficient newbuilds) and capital markets.

So the 21st century so far has been a breathless ride. There have been long, slow climbs and the occasional sharp drop, but many enjoy the thrill of the ride and want to get straight back on. Shall we go again? Have a fun day.

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