TWN Info Service on WTO and Trade Issues (Dec09/11)
17 December 2009
Third World Network

Global crisis slows growth in world seaborne trade
Published in SUNS #6833 dated 11 December 2009

Geneva, 10 Dec (Riaz K. Tayob) -- Growth in international seaborne trade decelerated in 2008 - expanding by 3.6% as compared with 4.5% in 2007 - on the back of the global economic downturn and a sharp decline in world merchandise trade in the last quarter of 2008, the UN Conference on Trade and Development (UNCTAD) has said.

In its "Review of Maritime Transport 2009", UNCTAD estimated the volume of international seaborne trade in 2008 at 8.17 billion tons.

The deceleration in seaborne volumes affected all shipping sectors, reflecting a sharp decline in demand for consumption goods, as well as a fall in industrial production in major economies and reduced energy demand especially in developed regions, said UNCTAD.

The report also pointed to the rising level of overcapacity in maritime shipping services supply following the recent boom years.

In respect of the growth of supply and demand in container shipping, based on the scheduled vessel deliveries, the report found that the fleet is expected to grow in 2009 by 9.6%, the second-highest growth rate over a 10-year period. This contrasts with an expected downturn of demand by 9.1%.

"The recent boom - especially in container shipping - is now bound to be followed by a historical bust," it said.

The report also pointed to lower freight rates, in part due to reduced demand precipitated by the current global economic crisis and increasing oversupply.

Highlighting some trends in the world economic situation and its prospects, the report said that world output in 2009 is projected to contract by 2.7% heralding the first contraction in global output since the 1930s. As demand for maritime transport is derived from economic activities and trade, "the downturn entails serious implications for the maritime transport sector and seaborne trade."

The prospects for 2009 are rather gloomy, the report added. Citing WTO data, it said that the volume of world exports is expected to fall by 10% in 2009, the first drop since 1982 and the largest since the Second World War. Developed countries' trade is expected to contract most, with exports falling by 14%, and exports by developing countries is expected to fall by 7%.

The maritime industry is concerned that protectionist measures introduced in the face of the global economic downturn may hinder trade further, ultimately deepening the global recession, said UNCTAD.

The report further said that while the fall in exports of developing countries is less dramatic than that of their developed country counterparts, their economies are likely to be hit much harder, as they rely much more on trade for their growth and development.

About 80% of international trade is carried via maritime transport, but this can be much higher for developing countries.

In tandem with the global economic downturn and reduced trade, growth in international seaborne trade decelerated in 2008. It expanded by 3.6%, but this growth was lower than the 4.5% of the previous year.

Noting that some challenging times lie ahead for the shipping industry and international seaborne trade, the report said that forecasts for seaborne trade have been marked downwards, with dry bulk, the mainstay of the boom experienced over the past few years, projected to fall sharply.

Further noting that the deceleration in seaborne volumes had affected all shipping sectors, the report found that growth in dry bulk trade is estimated at 4.7%, as compared with 5.7% in 2007. Accounting for about 16% of world goods loaded in volume terms (tons), container trade recorded the sharpest deceleration, with a growth rate falling by more than half - from 11% in 2007 to 4.7% in 2008.

Furthermore, signs of reduced energy demand emerged in the oil trade sector, especially in developed regions. Together, the volume of crude oil and products loaded grew by just 1.6%, as compared with 2.1% in 2007.

Since the early 2000s, the shipping industry and global seaborne trade expanded at healthy rates, benefiting in particular from the boom in trade driven by the economic expansion of emerging dynamic developing economies such as China and India, the report said, adding: "The buoyant markets that emerged, and the sustained record-high freight rates made the world almost forget the cyclical nature of shipping and its notorious volatility."

Recently declining trade volumes are occurring at the same time as the world merchant fleet has expanded, exacerbating the situation in the shipping industry. At the beginning of 2009, the fleet capacity reached 1.19 billion dead-weight tonnes, up 6.7% from January 2008. This growth was the result of vessel orders placed before the financial crisis, when the industry was still expecting continued high growth in demand for shipping.

Examining one indicative case, the report found that the tonnage oversupply in the world merchant fleet (surplus tonnage as a percentage in respect of three main vessel types in the merchant fleet) was 0.9% in 2004, 1.5% in 2007, 2.2% in 2008 and 2.9% as at 1 April 2009. In total, these three main vessel types had a capacity of 667.0 million dead-weight tonnes (dwt) in 2004, 830.7 million dwt in 2007, 876.2 million dwt in 2008 and 896.2 million dwt on 1 April 2009.

In respect of the demand for shipping services, the report said that world seaborne trade measured in ton-miles amounted to 32,746 billion ton-miles in 2008, representing an increase of 4.2% over the previous year. In 2008, dry cargo ton-miles increased by 5.5%, up from 5.3% in 2007.

Highlighting the new geography of trade (for example, South-South trade, changes in composition of trade and a larger share of trade in parts and components) and deeper international economic integration, the report said that ton-miles increased by a factor of three between 1970 and 2000 and expanded by 43% between 2000 and 2008.

Turning to the issue of liner shipments of containerised cargoes, the report found that the value of world container maritime trade grew from $2 trillion in 2001 to $4 trillion in 2008, accounting for around one in every $14 of global economic output. In 2008, the world total of containerized trade was estimated at 137 million TEUs (twenty-foot equivalent units), or 1.3 billion tons, an increase of 5.4% over the previous year.

[One of the principal authors of the report, Ms Hassiba Benamara, told SUNS that to help absorb the excess capacity, growth rates should at a minimum go back to their pre-crisis levels of an annual average growth of 10-11% in relation to container volumes.]

The report states that against a backdrop of growing container trade and profitable earnings, the shipping industry responded by investing in larger and more sophisticated container ships and equipment, as well as in container port and terminal operations. "An important share of the container capacity on order is expected to be delivered in the midst of depressed global trade and a contracting global economy."

"Since the worsening of the global financial crisis and the unfolding of a worldwide economic downturn, the landscape of container trade has changed and the prospects have become uncertain," said the report.

Based on scheduled (new) vessel deliveries in respect of container shipping, the report said, the fleet is expected to grow in 2009 by 9.6% - the second highest growth rate over a 10-year period. This contrasts with an expected downturn of demand by 9.1%.

"As the world's shipping capacity continues to increase even during the current economic downturn, the industry finds itself confronted with a surge of oversupply and tumbling charter and freight rates."

The report also found that an increasing proportion of container ships are gear-less (gear-less container ships are those ships that do not have cranes on board for loading and off-loading cargo, and depend on ports' cranes).

Noting that many ports have modernized and have specialized container gantry cranes, the report however cautioned: "Smaller and financially weaker ports, especially in developing countries, that have not been able to invest in specialised container cranes are confronted today with a situation whereby they can only accommodate an ever-diminishing proportion of the global container ship fleet."

In respect of reduced freight prices, the report points to the Baltic Exchange Dry Index (BDI, a composite index of shipping prices for various dry bulk products). The BDI experienced a record high in May 2008 followed closely by a severe decline of more than 90% by the end of the year as the crisis set in. Towards the middle of 2009, a partial recovery was seen, with rates at around 40% of their 2008 peak. However, volatility in freight rates remains, suggesting uncertain times ahead for developing economies dependant on trade in commodities.

The report said that new-building prices for all vessel types plummeted during the first quarter of 2009. The total tonnage on order as at 31 March 2009 stood at
10,992 vessels, with a combined capacity of 551.72 million dead-weight tonnes. This is 5.5% higher than a year earlier but down 6.1% from the peak of 587.82 million dwt in September 2008.

On the termination and rescheduling of orders for new-building of ships, the report found that since early 2008, there have been 289 failed contracts, contracts which are signed but have failed to become effective. There were 56 cancelled orders (cancelled legitimately or by default).

During the 12-months preceding mid-2009, a total of 279 orders have been delayed or postponed by mutual agreement. The latter corresponds to 4.3% of the existing order book (for new builds).

The report also drew attention to the United Nations Convention on Contracts for the International Carriage of Goods Wholly or Partly by Sea, also known as the "Rotterdam Rules", which deals with the regulation of liability arising from the international carriage of goods by sea.

The convention was opened for signature in 2009 and requires 20 ratifications for it to enter into force.

The report said: "It is important to note that ratification of the Convention is conditional upon denunciation of any other international convention in the field of carriage of goods by sea... Thus, adherence to the Rotterdam Rules requires an unequivocal decision that, on balance, national interests are better served by the new Convention, rather than by any of the established international maritime cargo-liability regimes." +