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TWN Info Service on WTO and Trade Issues (Nov16/14)
22 November 2016
Third World Network

United Nations: Seaborne trade exceeds 10 billion tons, but future uncertain
Published in SUNS #8359 dated 21 November 2016


Geneva, 18 Nov (Kanaga Raja) -- World seaborne trade in volume terms was estimated to have exceeded 10 billion tons for the first time ever in 2015, an expansion of 2.1 per cent from the previous year, the UN Conference on Trade and Development (UNCTAD) has said.

In its latest Review of Maritime Transport 2016, UNCTAD however said that this pace was notably slower than the historical average and below rates recorded over the last decade, when volumes were lifted by strong import demand from China.

According to UNCTAD, shipping carried more than 80 per cent of the world's goods by volume in 2015, and its slow growth reflects sluggish global trade, albeit with variations in the different sectors.

"With global trade growing at its slowest pace since the financial crisis, the immediate outlook for the shipping industry remains uncertain and subject to downside risks," said UNCTAD Secretary-General Dr Mukhisa Kituyi.

"The push for ever larger ships is at the root of the industry's problems. There's just not enough cargo right now to fill the newly acquired, bigger vessels," he added.

According to the UNCTAD report, although a number of factors are increasingly redefining seaborne trade patterns, maritime trade flows continue to be largely determined by developments in the macroeconomic landscape.

Falling short of expectations and below the pre-financial crisis levels, growth in world GDP expanded by 2.5 per cent in 2015, the same rate as in 2014.

Diverging individual country performances unfolded against the background of lower oil and commodity price levels, weak global demand and a slowdown in China. China's transition from an investment and export led- growth model has had an impact on global manufacturing activity, aggregate demand, investment and commodity prices.

"An additional factor dampening global growth was the reduced positive effect of lower oil prices, partly offset by the negative impact on investment in the oil sector and the import demand of oil-exporting countries."

In sum, global recovery continues but at a slower pace, with momentum created by China and other developing economies in Asia increasingly easing. Developments in the economy of China and related spillover effects on other large developing countries impact all countries, both developed and developing.

Other factors - namely, lower commodity and oil price levels, eroding terms of trade in many commodity and oil- exporting countries, weaker global demand and investment, geopolitical tensions and political unrest - contribute to heightening uncertainty, increasing downside risks and challenging the outlook for merchandise and seaborne trade, said the report.

SEABORNE TRADE

In 2015 - for the first time in UNCTAD records - world seaborne trade volumes were estimated to have exceeded 10 billion tons. However, shipments expanded by 2.1 per cent, a pace notably slower than the historical average and below rates recorded over the last decade, when volumes were lifted by strong import demand from China.

According to UNCTAD, a key influence on seaborne trade in 2015 was China. Over the last decade, China has contributed the largest shares of import volume growth, particularly in imports of dry bulk commodities, which fell in 2015, for the first time since the Great Recession.

Given the rising contribution of the services sector to the GDP of China, along with the contribution of industry and construction, the implications for seaborne trade patterns and volumes are significant, it said.

In 2015, dry cargo shipments accounted for 70.7 per cent of total seaborne trade volumes, while the remaining was made up of tanker trade, including crude oil, petroleum products and gas.

Also in 2015, volumes increased by 1.6 per cent, down from 4.1 per cent in 2014. Growth in world seaborne trade by ton-miles - providing a more accurate measure of demand for ship-carrying capacity, as it takes into account distances travelled - also decelerated; world seaborne trade totalled an estimated 53.6 billion ton-miles, up from an estimated 52.7 billion ton-miles in 2014.

"While there are reports of some increases in ship-operating speeds in the tanker sector, overall, the shipping industry seems committed to slow steaming as a way of managing excess capacity and, in view of the design of eco-ships, optimizing for lower speeds," said the report.

In 2015, dry cargo shipments increased by 1.2 per cent, a much slower pace than the 5 per cent growth in 2014. Trade in dry bulk commodities totalled 4.8 billion tons, with volumes declining by a marginal 0.2 per cent, the first decline since 2009.

Growth was constrained by a fall in shipments of the five major dry bulk commodities (-1.3 per cent), in particular coal (-6.9 per cent) which contracted for the first time in about three decades. The slowdown in construction and infrastructure investment by China and the decline in steel output have affected iron ore trade, which accounted for 13.6 per cent of total seaborne trade in 2015.

Minor bulk commodities (agribulks, metals and minerals and manufactures), many of which are also linked to steel production, are estimated to have increased by 1.5 per cent, supported, in particular, by growing exports of steel products from China.

Accounting for over one third of all dry cargo, volumes of other dry cargo (general cargo, break bulk and containerized cargo) are estimated to have increased at the slower pace of 2.6 per cent, with a total of 2.53 billion tons in 2015.

According to UNCTAD, reflecting sluggish intra-Asian trade and a drop in volumes in Eastern Asia-Europe trade, growth in containerized trade, which accounted for about two thirds of other dry cargo, is estimated to have decelerated significantly, from 6.1 per cent in 2014 to 2.9 per cent in 2015. Total containerized trade volumes are estimated at 1.69 billion tons, equivalent to 175 million twenty-foot equivalent units (TEUs).

In contrast, and supported in particular by an ample supply of oil cargo and lower oil prices, the tanker sector experienced one of its best performances since 2008. Crude oil shipments are estimated to have increased by 3.8 per cent in 2015, following two consecutive annual contractions in 2013 and 2014.

According to UNCTAD, petroleum products and gas trade together expanded by 5.2 per cent in 2015, up from 2.6 per cent in 2014.

According to the report, developing countries continued to contribute larger shares to the total volumes of international seaborne trade. Their contribution with regard to global goods loaded is estimated at 60 per cent, and their import demand as measured by the volume of goods unloaded increased, reaching 62 per cent.

"Developing countries remained key world importers and exporters in 2015 and have consolidated their position as suppliers of raw materials, while also strengthening their position as large sources of consumer demand and main players in globalized manufacturing processes."

With regard to regional influence, in 2015, Asia continued to dominate as the main loading and unloading area. The Americas surpassed Europe, Africa and Oceania with regard to goods loaded, while Europe received larger volumes of goods unloaded, followed by the Americas, Africa and Oceania.

"The outlook for seaborne trade remains uncertain and subject to downside risks, including weak global demand and investment, political uncertainties, such as the ongoing migration crisis, doubts about the future pace and direction of European integration and a further loss of momentum in developing economies," said UNCTAD.

UNCTAD forecasts world GDP growth to dip below the 2.5 per cent recorded in 2014 and 2015 and grow by 2.3 per cent in 2016. According to World Trade Organization data, world merchandise trade volumes are projected to remain steady and expand at the same pace as in 2015.

Prospects in developing countries remain generally weak. Lower commodity prices are estimated to cut almost 1 percentage point annually in 2015-2017 from the average rate of economic growth in commodity-exporting countries, compared with the rate in 2012-2014.

The negative impact on the growth of energy-exporting countries is estimated to be greater, at about 2.25 percentage points on average over the same period.

"In developed economies, the weak performance recorded since the 2008-2009 economic and financial crisis is set to continue. In addition, the long-term consequences of the decision by the United Kingdom to leave the European Union have yet to be fully understood."

The report said that negative signals in the macroeconomic framework are increasingly dampening maritime cargo volumes. While some estimates indicate a slight improvement in 2016, the projected growth rates remain below the UNCTAD estimated average of over 3 per cent in 1970-2014.

Major dry bulk commodities are projected to grow marginally, reflecting a continued drop in coal trade, while containerized trade volumes are expected to recover marginally in 2016. Tanker trade, including gas trade, is projected to grow by an estimated 3.6 per cent in 2016, supported in part by growth in China's crude oil imports and refineries and continued stock-building activity.

"Although positive, this rate remains below the level in 2015, reflecting the diminishing positive effect of lower oil prices on demand, lower trading activity and moderation in stock-building."

Although many signals are negative, seaborne trade continues to grow, with volumes exceeding an estimated 10 billion tons in 2015. While a slowdown in China is bad news for shipping, developing countries other than China are increasingly entering the shipping scene and have the potential to drive further growth.

The lifting of some sanctions on the Islamic Republic of Iran is expected to stimulate crude oil trade, as well as non-oil sectors.

UNCTAD said thanks to population growth, and the potential maritime trade and business opportunities that may be generated by new transport infrastructure projects such as the extension of the Panama Canal and the Suez Canal, the long-term prospects for shipping remain positive.

STRUCTURE OF GLOBAL FLEET AND SHIPBUILDING

According to the report, the global commercial shipping fleet in terms of dwt (dead-weight tons) grew by 3.48 per cent in the 12 months to 1 January 2016, the lowest growth rate since 2003. Yet the world's cargo-carrying shipping capacity still increased faster than demand (2.1 per cent), leading to a continued situation of global overcapacity.

In total, as at 1 January 2016, the world commercial fleet consisted of 90,917 vessels, with a combined 1.8 billion dwt. The highest growth was recorded for gas carriers (+9.7 per cent), followed by container ships (+7.0 per cent) and ferries and passenger ships (+5.5 per cent), while general cargo ships continued their long-term decline, with the lowest growth rate of major vessel types. Their share of the world's tonnage is currently only 4.2 per cent, down from 17 per cent in 1980.

In 2015, there were 211 new container ships delivered, less than half the number (436 ships) delivered in the peak year of 2008. However, as vessel sizes in this market segment have increased significantly, in terms of container-carrying capacity, 2015 set a historical record in the building of container ships.

Globally, shipyards produced 1.68 million TEUs (20-foot equivalent units) in 2015, an increase of 12.7 per cent over 2014 and 12.4 per cent over the previous peak number of deliveries in 2008.

At the start of 2016, the average age of commercial ships had reached 20.3 years, a slight increase over the previous year. Following additions to the fleet over the last 10 years, the current average age remains low, compared with previous decades.

The leading shipowners among developing countries are in Asia, led by China and Singapore. Developed countries still account for almost 60 per cent of global vessel ownership, although the share of developing countries has been increasing. Among the top 35 ship-owning economies, 18 are in Asia, 13 in Europe and 4 in the Americas.

By sub-region, the largest ship-owning countries in Africa are Angola (5.4 million dwt), Nigeria and Egypt; in South America, Brazil (15.8 million dwt), the Bolivarian Republic of Venezuela and Chile; in South Asia, India (21.7 million dwt), Bangladesh and Pakistan; and in South-East Asia, Singapore (95.3 million dwt), Indonesia and Malaysia.

In 2016, the average size of ships in the order book is 8,508 TEUs, more than double the existing average vessel size. That is, ships entering the market in the coming months and years will be far larger than those currently in use. In total, the order book is at 18 per cent of existing capacity, said the report.

It further pointed out that the overall position of a country in global container shipping networks is reflected in the liner shipping connectivity index (LSCI).

In May 2016, the best-connected countries, that is, those with the highest index LSCI, were Morocco, Egypt and South Africa in Africa; China and the Republic of Korea in Eastern Asia; Panama and Colombia in Latin America and the Caribbean; Sri Lanka and India in South Asia; and Singapore and Malaysia in South-East Asia.

As at 1 January 2016, Panama, Liberia and the Marshall Islands continued to be the largest vessel registries, together accounting for 41.0 per cent of world tonnage, with the Marshall Islands recording the highest growth among major registries, at 12 per cent over 2015. The top 10 registries account for 76.8 per cent of the world fleet in terms of dwt.

The world fleet provides approximately 1,545,000 jobs for seafarers in international shipping. Approximately 51 per cent of positions are for officers, compared with 49 per cent for ratings, that is, non-officer sailors such as able seafarer or ordinary seafarer (in 2005, the ratio was 45 per cent officers compared with 55 per cent ratings).

For the first time in history, the proportion of officers is higher than that of ratings, reflecting technological advances and lower demand for manual on-board work.

The highest numbers of seafarers are provided by China (243,635), followed by the Philippines (215,500), Indonesia (143,702), the Russian Federation (87,061), India (86,084) and Ukraine (69,000).

According to the report, on-board employment provides an example of the importance of economies of scale in shipping. For example, a crew of 14 or 15 seafarers is required for a container ship or dry bulk carrier of 10,000 gross tons. A ship of 10 times the size (100,000 gross tons) does not require 10 times more seafarers, but can operate well with 19 or 20 seafarers.

In 2015, 91.3 per cent of shipbuilding by gross tonnage took place in only three countries, namely, China (36.1 per cent), the Republic of Korea (34.3 per cent) and Japan (20.9 per cent), while most demolitions of old ships take place in Asia.

Four countries - Bangladesh, China, India and Pakistan - accounted for approximately 95 per cent of known ship scrapping in 2015.

In line with falling shipyard capacity and the stretched finances of owners and banks, the world order book continued to decline for most vessel types in 2015-2016, with the exception of container ships.

Compared with their peak values in 2008 and 2009, the order book for container ships declined by 46 per cent, for oil tankers by 51 per cent, for dry bulk carriers by 61 per cent and for general cargo vessels by 82 per cent (the largest decline recorded).

To date in 2016, demolitions have increased and there has been a slowdown in new orders.

"However, this has not sufficed to reduce existing overcapacity. With low oil prices, there is less pressure for operators to apply slow steaming to save fuel, and if ships are faster, additional vessels are potentially released from service, increasing overcapacity. Another effect of low oil prices is that there is less incentive to scrap old, inefficient capacity," said UNCTAD.

FREIGHT RATES

According to the report, container freight rates declined steadily, reaching record low prices as the market continued to struggle with weakening demand and the presence of ever-larger container vessels that had entered the market in 2015.

The limited growth in container demand in 2015 can be attributed to several factors, including weak European demand, which had an impact on peak leg trade between Asia and Europe, and low commodity prices, in particular of iron ore and crude oil.

This affected the economies, and in particular the imports, of commodity-dependent developing countries, mainly in Africa and Latin America. Another contributing factor was slower economic activity in China, which also had an impact on intra-Asian trade growth.

Both main-lane and non-main-lane freight rates struggled to cope with volatility and strong downward pressure, reaching a record low in 2015.

The Far East-Northern Europe trade route freight rates, for example, averaged as low as $629 per TEU in 2015, down by almost 46 per cent from the 2014 average and by 65 per cent, compared with rates in 2010.

In contrast, Far East-Mediterranean spot rates fell by 41 per cent, reaching $739 per TEU, a decline of 41 per cent, compared with rates in 2014, and almost 58 per cent less than rates in 2010.

Far East-South America freight rates declined on average to $455 per TEU, a decrease of 59 per cent from 2014, less than 80 per cent, compared with prices in 2010. These low rates barely covered minimum operational costs.

Even those trade routes that had experienced stronger growth in demand were faced with low freight rates. For instance, the Transpacific Shanghai-United States West Coast annual rate averaged $1,506 per 40-foot equivalent unit, a drop of 23.55 per cent, compared with 2014, less than 35 per cent, compared with prices in 2010.

Shanghai-United States East Coast spot rates fell by 14.45 per cent to reach an annual average of $3,182 per 40-foot equivalent unit in 2015, compared with $3,720 in 2014, 9 per cent less than in 2010.

"Given the challenging market conditions, the expected profits from the new large and more efficient ships that had entered the sector did not materialize and led to further financial distress for some major carriers. This resulted in a decline in revenues for the major shipping companies, from $204 billion in 2011 to $173 billion in 2015."

According to the report, problems affecting the container freight market in 2015 can be traced to diverging and persistent global supply-and-demand trends and growing imbalances. This situation is expected to continue throughout 2016 and 2017, when carriers with capacities of up to 21,100 TEUs will be in service.

Despite weakening demand and low freight rates, carriers continued to invest in larger vessels in 2015. The global container ship fleet is projected to grow by 4.6 per cent in 2016 and another 5.6 per cent in 2017.

"Such a pace would continue to outstrip global container demand and exacerbate market fundamentals and in turn challenge container ship market conditions and freight rates in the short term, especially on the main-lanes."

Consequently, said UNCTAD, poor performance is also expected and may result in further consolidation and restructuring of the container shipping industry.

In 2015, the dry bulk market witnessed one of its worst years since 2008. Dry bulk freight rates plunged to a record low as weakening demand and strong supply created a high imbalance in market fundamentals.

The tanker market, which encompasses the transportation of crude oil, refined petroleum products and chemicals, witnessed one of its best years since the market crisis in 2008.

The crude oil tanker and oil product tanker markets enjoyed strong freight rates throughout 2015, prompted by the drop in oil prices that had begun in mid- 2014 and had been sustained by relatively low supply-side growth in 2015.

Overall, average tanker earnings per vessel rose to an average of $31,036 per day, an increase of 73 per cent over 2014, the highest level since 2008.

"In 2015, maritime freight rates in most shipping segments endured volatility and downward movements that saw record low levels in container and dry bulk markets, breaking well below operating costs. Weak demand and high fleet growth pushed fleet utilization down further and intensified deflationary pressure on freight rates in most markets, except for tankers," said the report.

In 2016, the shipping industry is likely to face yet another challenging year in most segments because of the persistent mismatch between supply capacity and demand.

With an uncertain global outlook for seaborne trade, freight rates will therefore continue to be determined by the way supply capacity management is handled, it concluded. +

 


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