Archives for posts with tag: world economy

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.



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.


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

On 26th June 2016, a landmark development for the shipping industry will occur with the opening of the new third set of locks at the Panama Canal. Around ten years in the making, the expansion will enable significantly larger ships to transit the Canal, which is likely to have a wide and significant range of implications across a number of shipping sectors.

Beam Me Through, Scotty!

Since opening in 1914, the Panama Canal has provided a key point of transit between the Atlantic and Pacific Oceans. Nearly 14,000 transits of the canal were recorded last fiscal year, carrying around 230mt of cargo. While this accounts for just 2% of total global seaborne trade, the canal is a key shipping lane for a number of vessel segments and cargo flows.

At a macro level, vessel upsizing trends over recent decades have significantly increased the number of ships that are too large to transit the canal. On the 20th June 2016, more than half (55%) of total dwt capacity in the world fleet was accounted for by ships too large to transit the canal. The new, larger locks will enable many additional vessels to transit, as the maximum permissible beam will initially be raised to 49m, up from 32.3m at the old locks, while the maximum LOA and draft at the new locks will be 366m and 15.2m respectively. On the basis of the ‘New Panamax’ dimensions, 79% of dwt tonnage in the world fleet will now be able to officially pass through the canal.

Walk On The Wide Side

The most significant impact of the opening of the new locks will be on the containership sector, which has accounted for around a third of all canal transits and half of the annual toll revenue. More than 1,400 boxships of 12.5m teu (63% of total containership fleet capacity) are too large to transit the old locks today, but only around 200 of 3.0m teu (15% of fleet capacity) will be too large to pass through the new locks. Vessels of up to and around 13,500 TEU will be able to transit, compared to around 4-5,000 teu previously. This is expected to drive significant changes in containership deployment, particularly on the Transpacific trade.

Let’s Go Wide

In addition, the opening of the new locks is generally thought likely to have an important impact on the LNG, LPG and car carrier sectors. All VLGCs will be able to transit the new locks, as will the majority of LNG carriers, compared to only a handful of small LNG carriers previously. This is expected to lead to an increase in LNG vessels transiting the canal, typically with exports from the US.

Locked In To A New Era

Clarksons Research is marking this important milestone through a number of data updates. Fleet databases now include vessel indicators for the ability to transit both the “New” and “Old” locks of the Panama Canal, which will be displayed on vessel profiles within Shipping Intelligence Network and World Fleet Register. Vessel segmentation within the containership sector will also be updated to best reflect the structure of the fleet in the context of the expanded canal. As the Panama Canal enters a new era, for many in the shipping industry it’s the perfect time to “go wide”. Have a nice day!


Despite the many domestic and market challenges facing the Hellenic ship owning community, Greece has continued to strengthen its position as the largest ship owning nation in recent years. As the shipping community begins to gather for another Posidonia, Greek owners today control some 18% of the world fleet, with a 333m dwt fleet on the water and a further 40m dwt on order.

Greek owners continue to top the league table of ship owning nations with a 196m GT fleet and global market share of 16% (by GT), followed by Japan (13%), China (11%) and Germany (7%). In recent years this position has in fact been consolidated, with the Greek fleet growing by over 7% in 2015 – the most significant growth of all major owning nations. Aggregate growth since 2009 is even more significant; some 70% in tonnage terms. The big loser in market share in recent years has been Germany, while China’s aggressive growth in the immediate aftermath of the financial crisis has slowed (the Chinese fleet doubled between 2009 and 2012 as solutions were found to distressed shipyard orders). Athens/Piraeus also features as the largest owning cluster globally, with Tokyo, Hamburg, Singapore and Hong Kong/Shenzhen making up the top five.

Punching Above Their Weight!

Greek owners remain the classic “cross traders”, developing their market leading position as the bulk shipping system evolved in the second-half of the twentieth century. Today, the Greek owners’ share of the world fleet at 16% compares to a seaborne trade share for Greece of less than 1%. By contrast, Chinese owners control 11% of the world fleet relative to the Chinese economy contributing to 16% of seaborne trade.

Sticking With Wet And Dry

Although a number of Greek owners have diversified into other shipping sectors, Greek owners have generally retained a focus on the “wet” and “dry” sectors. Today, the Greek fleet is largely made up of bulkcarriers (47% by GT) and tankers (35%) with this combined share hovering around 85% for most of the past twenty years. There has been some development of the Greek owned containership fleet (up to an 11% share) and gas carriers (up to a 4% share) but this is still generally limited. By contrast, Norwegian owners have trended towards more specialised vessels (e.g. offshore, car carriers) and the German fleet has remained liner focused.

Asset Players

Greek owners have also retained their role as shipping’s leading asset players and today operate a fleet with a value of some $91 billion (actually third in the rankings behind the US due to the value weighting of the cruise fleet). In 2015, Greek owners were the number one buyers (followed by China) and number one sellers (followed by Japan and Germany) in the sale and purchase market. Greeks have not been quite so dominant in the newbuild market recently and in 2015, Greek owners ($6.9bn of orders) trailed Japan ($13.1bn) and China ($10.7bn) in the investment rankings.

So despite facing many challenges, Greek owners continue to “punch above their weight” as the world’s leading shipowners for yet another year!


The global fixed platform “fleet” consists of over 7,700 installed structures, equivalent in unit terms to 58% of the mobile offshore fleet. Yet the significant role played by fixed platforms in generating requirement for offshore vessels and services (such as platform installation and IMR) is at times overshadowed by the role of the mobile offshore fleet. So what, then, is the current outlook for the fixed platform sector?

Back To Basics

Fixed platforms are immobile structures that are attached to the seabed and used to exploit offshore fields. All but 32 fixed platforms are located in water depths of less than 200m and the average water depth of the 7,744 installed units is 42m. Platforms usually consist of a ‘jacket’ (the legs) and ‘topsides’ (the decks), and are fabricated from steel, though concrete or wood have been used. Indeed, the first ever fixed platforms were wooden structures off California in the 1930s; these have been dismantled, but North America still accounts for 31% of the fixed platform “fleet”, a legacy of shallow water E&P in the GoM. Other major historical areas of fixed platform installation include the Middle East/ISC (15% of the fleet), SE Asia (22%) and the North Sea (7%). The North Sea is home to most larger structures, such as the 898,000t “Gullfaks C” gravity base platform. Most structures in areas like the Middle East and the US GoM, meanwhile, are at the opposite end of the scale – unmanned monopod/tripod wellhead platforms of less than 100t.

Construction Crunch

Historically, fixed platforms have been a core business area for a number of fabrication yards and EPCI companies. Installation of small structures tends to involve units like liftboats in the US GoM and crane barges in the Middle East. Larger structures (in the North Sea or West Africa) have required more robust transportation and heavy-lift vessels. At present though, the fabrication and installation outlook is subdued. As shown in the inset graph, 96 platforms were ordered in 2014, down 49% y-o-y; in 2015, 42 were ordered, down another 56% y-o-y. Most ordering has been for smaller units in the Middle East (14%, 2014-15) and SE Asia (39%): platforms like the 43,700t “Johan Sverdrup CPP” (North Sea) are exceptional. Reduced contracting is partly due to the weaker oil price, but it also reflects a longer term shift towards subsea developments and deepwater E&P.

A Shift To Services?

It seems, then, that outside of expansion projects in a few areas, the near term demand generated by fixed platforms is likely to be mainly from servicing existing units: facilities need maintaining, paint needs reapplication and so on. For example, long-term, multi-field IMR contracts have reportedly been awarded for platforms in the UK and Saudi Arabia in recent months. PSV and helicopter demand to supply manned platforms (and ERRV demand in the North Sea) will also persist unless fields are shut down. And even then, potential exists in platform removal: there are currently five planned decommissioning projects involving platforms, each project with a value of c.$400m.

So the fixed platform construction market is fairly challenged. But there are other ways in which fixed platforms can create opportunities. These may be quite niche or oblige EPCI companies to adapt, but with 7,744 units in place, the sector is in several regards still worth some attention.


The rise of deepwater E&P constituted a boon for the offshore fleet, helping to drive, for example, 180% and 60% increases in the FPSO and floater fleets from 2000 to 2015. However, deepwater development has lagged exploration, and so the offshore sector is fairly exposed to projects with high breakevens – problematic, given the oil price. But could the downturn actually help deepwater E&P in the long term?

Deepwater Exploration

The first deepwater offshore discovery was not made until 1976, by which point 1,018 shallow water fields had been discovered and 350 brought onstream, and it was only in the late-1990s that deepwater E&P really took off. Oil companies began pushing deeper into the US GoM, while the internationalization of the industry in the 2000s saw a spate of deepwater discoveries off West Africa and Brazil. A robust and rising oil price helped sustain rising deepwater E&P until 2015, with India, Australia and East Africa becoming important frontiers too. The average water depth of global offshore field discoveries passed 200m for the first time in 1996, 500m in 2004 and 800m in 2012, and the number of deepwater discoveries averaged 55 per year from 2005 to 2015.

Deepwater Production

However, as the main graph shows, the mean water depth of discoveries rose much faster than did that of start-ups: the former stood at 734m in 2015, the latter at 377m. Indeed, by 2016, out of a total of 998 deepwater finds, just 27% had started up, with deepwater start-ups averaging 19 per year from 2005 to 2015. The divergence was in large part because technological barriers and cost overheads in deepwater production – subsea, SURF and MOPU – are more complex and expensive than in exploration, and efficiency gains seem to have been more limited to date as well. Deepwater project sanctioning was therefore relatively inhibited, and due to limited sanctioning, the backlog of undeveloped deepwater fields grew at a faster rate than that of shallow water fields, as indicated by the inset graph. Thus over time, the overall backlog of potential projects has become more costly and complex. Indeed, some reports suggest oil project average breakevens have risen by c.270% since 2003.

Deepwater Challenges

This is partly why the offshore outlook is challenged at present: deepwater fields have relatively high breakevens (usually $60-$90/bbl) yet also form a major part of oil companies’ portfolios. Some major oil companies have indicated that 2016 E&P spending cuts are to bite deeper off than onshore, where costs are lower (even for shale, in many cases). In January 2016, Chevron decided to axe outright Buckskin, a US GoM project in a water depth of 1,816m with a breakeven of c.$72/bbl. ConocoPhilips, meanwhile, is planning to exit deepwater altogether.

However, in order to make deepwater viable again, many companies are trying instead to cut project costs. Statoil, for example, has reduced the CAPEX of Johan Castberg by 48% and the breakeven by 40%. Some cost savings (in day rates, for instance) are likely to be cyclical; others, such as in subsea fabrication, yielding improved deepwater project economics, are likely to be more lasting. So while exposure to deepwater projects is clearly a challenge given the current oil price, cost cutting now could be to the benefit of deepwater E&P in the long run.