Archives for posts with tag: world seaborne trade

In the last few decades, the shipping industry has generally been able to rely on seaborne trade as a fairly steady performer. However, the slowdown in volume growth since the financial crisis has focussed the industry’s thoughts on potential barriers to healthy long-term trade growth, so all eyes are on signs of a potential return to faster expansion in volumes…

Steady As She Goes

From 1988 to 2008 growth in world seaborne trade averaged an estimated 4.2% pa, a fairly robust level underpinning long-term demand for ships. Sure, the markets at times felt the impact of oversupply, but sustained weakness of demand growth wasn’t generally the problem. However, since 2009 the growth rate has slowed, averaging 3.2%, and just 2.8% since 2013. This still equates to significant additional volumes (1.8% growth in 2015 added 194m tonnes) but it’s still enough to get market players worrying.

Could Be Worse?

But should it? Maybe it depends on how you put the trend into context. Cycles can be long; Martin Stopford has famously identified 12 dry cargo cycles of more than 10 years back to the 1740s! The current cycle certainly feels like it has dragged on; it’s now more than eight years since the onset of the financial crisis. However, there are interesting historical comparisons. Between 1929 (the year of the Wall Street Crash) and 1932, the value of global trade dropped by 62% and didn’t get back to the same level until the post-war years. Now that really would have been a time to worry!

Getting Serious?

Today perhaps some of the anxiety is amplified by the seemingly wide range of factors that look threatening to seaborne trade’s supportive historical record. Protectionist tendencies, whether they be from the Trump presidency or the UK’s Brexit vote, slowing growth in China, ‘peak trade’, robotics and 3D printing: no-one really knows how things will pan out but everyone’s watching closely for anything to allay at least some of the fears.

Basket Case

So that brings us back to our old friend the ‘monthly trade basket’ (see graph and description). Six months ago we reported that this appeared to be showing a pick-up and this time round things are still looking positive. The 3-month moving average shows a generally upward trend since autumn 2015 with an average of 4% in the second half of 2016, hinting that the bottom of the demand cycle may finally have been passed. The current projection for overall seaborne trade in 2017 is still less than 3% with plenty of scenarios possible, but both market sentiment and the momentum right now feel a little more positive than that.

Feeling Any Better Yet?

So, while it’s quite right to try to assess the range of factors which appear to be lining up against a return to more robust levels of trade growth, it’s also far from incorrect to look for signs of a turn in the trend. Cycles in shipping can be long and sometimes it can take a while to identify them. That may not be helpful to hear but you can have a nice day trying…

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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.

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One of the major drivers behind the challenges currently facing many of the shipping markets has been slower demand growth. World seaborne trade grew by less than 2% in 2015, the slowest pace since 2009, with trends in China pivotal. After the emergence of plenty of disappointing demand-side data last year, what do the indicators of Chinese trade so far in 2016 reveal?

A Surprising Start?

It’s a vital question. Chinese seaborne imports reached a massive 2.1 billion tonnes last year, accounting for 20% of global imports. But in 2015, growth in Chinese imports eased to just 1%, from an average of 9% p.a. in 2011-14. However, data for the first quarter of 2016 provides some pleasant surprises. After slowing for four consecutive years, growth in Chinese seaborne imports in tonnes appears to have picked up pace in Q1 2016, increasing by 6% y-o-y.

Picking Up Speed

Iron ore trade, which last year accounted for 45% of total Chinese imports, has driven much of this growth. Iron ore imports had a strong Q1 2016, rising by 7% y-o-y to 239mt. This was supported by restocking of iron ore inventories in line with improved steel demand and prices in recent months, following government support for infrastructure projects. This has been despite total steel production continuing to contract y-o-y, by 4% in Q1. Meanwhile, Chinese coal imports appear to have stabilised recently, following a sharp fall in 1H 2015, and the pace of decline in imports in Q1 2016 eased to 6% y-o-y. Growth in China’s minor bulk imports also improved marginally in Q1.

Some improvements have also been apparent outside of the dry bulk sector. Expansion in China’s crude oil imports has accelerated, with imports up 14% y-o-y in Q1 to 84mt, following robust growth of 9% in 2015. Imports have been boosted further this year by the liberalisation of the crude oil import market, opening up imports to independent refiners. And although Chinese gas demand came under pressure in 2015 from weaker industrial use, recent cuts to domestic gas prices have supported demand and LNG imports grew 17% y-o-y in Q1 2016 to 6mt.

Mixed Results

Meanwhile, indicators of Chinese exports remain mixed. Container trade on the key Far East-Europe route grew slightly in Q1, after falling 4% in 2015; the impact of adjustments to European inventories and falling Russian demand is likely to moderate this year. However, growth in China’s steel products exports has slowed, partly reflecting greater domestic steel demand.

A Question Of Endurance?

Overall, it would still be fair to say that the seaborne demand environment is still highly challenging, and that volatility clouds the picture in China and elsewhere. Moreover, questions remain over the sustainability of recent developments in some of China’s industrial sectors, and major obstacles to trade volume growth clearly remain. Nevertheless, there are some areas where improved Chinese volume growth has provided a nice surprise so far this year. Against a troubled background, shipping market players will hope these trends at least have a little mileage. Have a nice day.

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The volatility of the shipping markets has always presented opportunities and pitfalls for investors (see SIW 1210). Getting the timing right is key, and newbuilding decisions can prove especially difficult given the need to look further forwards into the future – always a tricky task. The challenging state of many shipping markets suggests that owners have struggled to find the right balance when planning ahead.

Changeable Winds

Accurately forecasting future shipping market developments is clearly fraught with difficulties. Owners making newbuild investments may be renewing their fleets, or building for dedicated business, but for those ordering more speculatively, the investment might reflect expectations of future demand and market conditions.

These trends are hard to predict. Economic and political developments, amongst many others, can shift quickly and change trade patterns. Combined with supply factors such as newbuild pricing or finance availability, it is easy to see how the volume of tonnage ordered can be misaligned with the requirement.

Clouds Gathering

Comparing historical contracting to the volume of ‘required’ deliveries shows that investment has frequently ‘overshot’ the need for additional ships. In 2003 for example, global contracting totalled 117m dwt. Assuming that these ships take two years to be delivered, trends in 2005 could indicate whether this level of ordering was lower than or surplus to requirement. Global demolition totalled 6m dwt in 2005, and world seaborne trade grew by 4.5%, which based on estimated fleet productivity in 2003, could have required an extra 42m dwt of tonnage to transport. So ordering in 2003 may have been 70m dwt greater than the estimated volume of deliveries needed in 2005. The surplus was even greater in 2007, when 275m dwt was ordered, but with seaborne trade dropping by 3.7% in 2009, there was no ‘requirement’ for any additional tonnage to be delivered that year.

Gusts From The East

Since 2000, more years than not have seen ‘excess’ ships ordered. After the financial crisis hit, surplus capacity led to weaker markets and changes in productivity, such as slow steaming. Ordering in 2009-12 was closer to estimated ‘requirement’, but surged to 178m dwt in 2013, with hope in some sectors that the bottom of the cycle had been reached.

Yet 2015 saw seaborne trade growth slow to 2.1%, led by trends in China. With 39m dwt scrapped in 2015, and an estimated 36m dwt needed to ship the additional trade volumes, ordering in 2013 could have ‘overshot’ by 100m dwt, exerting further supply pressures.

An Unsettled Climate

The story clearly varies across sectors, but shipping investors seem an optimistic bunch, and are now being let down by underperformance of seaborne trade. At times, this optimism has raised demand for shipyard capacity, but has still created a surplus, with lower ordering in 2014-15 still possibly excess to requirement based on current projections. In such a changeable climate as shipping, it’s clear that checking the forecast is vital, but it seems that getting a clear view ahead is hard.

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