Eromosele Abiodun examines UNCTAD’s review of maritime transport and submits that the long-term growth prospects for seaborne trade and maritime business, especially from emerging markets, are positive
Before now the global maritime business was dominated by Western countries. That appears to be changing as developing countries are increasing their involvement in many parts of global maritime business. Aside expert’s position on the development, the review of maritime transport 2016, published by the United Nations Conference on Trade and Development (UNCTAD), this month, lays credence to this. The review, however, outlined a cautiously upbeat view of global shipping in the years ahead. This is correct because just two days after the report appeared, Donald Trump was elected as the next president of the United States.
Risks for world trade appear to have suddenly multiplied or, at least, uncertainty has been abruptly amplified by this election outcome. The president-elect has criticised globalisation and free trade, expressed hostility towards international trade pacts and shown enthusiasm for a protectionist stance. What is not clear yet is how much was campaign rhetoric and how much was firm intention. If government policy evolves on this basis, a potentially highly unstable period for world trade could result, where detrimental influences are a bigger feature. However, that is speculation and may remain so until the new government is installed early next year and clarification ensues. However, the report suggests that long-term growth prospects for seaborne trade and maritime businesses are positive, although there are many uncertainties and downside risks. Analysis of the report points to ample opportunities for developing countries to generate income and employment and help promote foreign trade.
Ship Supply Questions
Meanwhile, an analysis of the entire world fleet of commercial vessels by country of ownership, as at 1 January 2016, reveals that three countries remain at the top. Greece is still by far the largest owning country with 293 million deadweight tonnes, 16.4 per cent of the 1792 million dead weight tonnes world total. Japan is the second largest, with 229 million dead weight tonnes (12.8 per cent) and China is in number three position with 159m dwt (8.9 per cent). Accompanied by Germany (119 million dwt) and Singapore (95m dwt), the top 5 owning countries comprise exactly half of the world total.
The UNCTAD report discussed the structure, ownership and registration of the world fleet of ships. It points out that the fleet’s deadweight capacity (all ship types) grew by 3.5 per cent in 2015. While this increase was the lowest annual percentage for over a decade, it was still far higher than the 2.1 per cent growth in demand, resulting in continued global overcapacity.
The authors focus on various positive indicators for shipping markets. However, there was a discussion about the downside of the huge container ships surplus caused by overinvestment, which the review suggests is not in the long-term interest of either liner operators or shippers. In the short term shippers may benefit from lower container freight rates but, in the long term there is a danger of more markets with oligopolistic market structures, reflecting a continued process of concentration as service operators become fewer.
Ship Demand Conundrum
Experts believe UNCTAD’s view of the seaborne trade outlook seems realistic at present and, to some extent, provides a counterpoint to alternative more pessimistic projections emerging during the past twelve months or so. But the report concedes that negative developments in the macroeconomic framework are intensifying, and dampening maritime cargo volumes. Nevertheless, the experts argued that growth in global seaborne trade is still intact.
“While China’s slowdown is bad news for shipping, a number of developing countries are becoming more involved and could drive further trade enlargement,” said the National President of the National Council of Managing Directors of Licensed Customs Agents (NCMDLCA), Lucky Amiwero.
Uncertainties and downside risks listed in the report include: weak global demand and investment, political uncertainties such as the on-going migration crisis, doubts about the future pace and direction of European integration and a further loss of momentum in developing countries.
Moreover, another set of factors were identified – technology, innovation, the data revolution and e-commerce – which can transform and disrupt the shipping industry, generating both challenges and opportunities. How will these trends evolve? The report admits the outcome is unknown.
Among causes for anxiety about the future evolution of world seaborne trade was prominent, along with the shared and circular economies. However, the report does not comment specifically on the likely timing of most of the impact from these trends. What seems clear though is that these are longer-term influences evolving over a decade or two perhaps and, as a result, immediate effects may be limited. Reduced global use of fossil fuels is another, more tangible, worry for the shipping industry because it is already highly visible.
The fourth industrial revolution is a concept which envisages that innovation, technology and big data could assist in increasing efficiency and productivity in the global economy. This progress, experts believe, could shift established modes of production and consumption, with negative implications for seaborne trade.
Experts also believe that the performance of supply-chains could be enhanced, accompanied by a reduction in their typical length as features such as three-dimensional (3D, or additive) printing and robotics are increasingly incorporated.
Shorter supply-chains, they added, imply shorter average sea voyage distances, with adverse effects on the demand for shipping services.
“Similarly, the impact of the shared and circular economies points to savings and efficiency gains which could lower demand for maritime transport. Shared economy characteristics (renting and swapping, for example) may modify demand and also supply chains. This would be achieved through new technology and platforms that facilitate asset management, service delivery and information access.
A circular economy promotes effective use of resources, greater resource conservation, and reduced reliance on fossil fuels and raw materials, to achieve sustainable production and consumption patterns. Steps have been taken already in numerous countries to cut fossil fuel consumption. Further advances in renewable energy production and energy storage could have a large adverse impact on oil, coal and liquefied gas movements and associated demand for shipping capacity,” Amiwero submitted.
Developing Countries’ Maritime Strengths
Many developing countries are involved in five key aspects of the global shipping scene – shipowning, ship registration, seafarer supply, shipbuilding and ship recycling. As the UNCTAD report emphasises, in some activities developing countries are top participants, with increasing shares of the world market. The report suggests that a good policy choice for policymakers in these countries is to identify and provide support for selected maritime businesses in sectors where a comparative advantage is evident.
According to the report, for developing countries as a group (including transition economies) their ownership share of the global fleet total, as at the beginning of 2016, was just over two-fifths (40.5 per cent) and has been rising. Most of this capacity is owned in Asia, and just over half of that Asian sub-group is comprised of three countries/territories, China, Singapore and Hong Kong (China), jointly owning 19.1 per cent of the world fleet’s deadweight tonnage.
A breakdown of the fleet owned in Asian developing countries, by ship type, shows that almost half consists of bulk carriers, one quarter is comprised of tankers, and one eighth is container ships. For comparison, in other developing country regions with much smaller tonnages, the breakdown is very different. Fleets in developing countries in Africa and the Americas have high shares of offshore supply vessel ownership.
As is well known, ship registration in the global fleet is highly concentrated in developing countries. The report showed that, as calculated at the beginning of 2016, this group registers just over three-quarters (76 per cent) of the world fleet’s deadweight tonnage. The top five flag states are all in this category, jointly registering 57 per cent of the world total. Panama is the largest, with 19 per cent, followed by Liberia (11 per cent), Marshall Islands (11 per cent), Hong Kong, China (nine per cent) and Singapore (seven per cent). Providing seafarers for the international shipping market is another large and strongly evolving activity for developing countries.
“Figures for 2015 were drawn from a survey conducted jointly by BIMCO and the International Chamber of Shipping, published several months ago. These show China contributing the largest number at 244,000 (15 per cent of the world total). In second place was Philippines with 216,000 (13 per cent), followed by Indonesia’s 144,000 (nine per cent). Russia, India and Ukraine also provided substantial numbers. Global demand for seafarers apparently increased by a cumulative 45 per cent during the decade ending last year, facilitating the expanding involvement of developing countries,” UNCTAD said.
A positive perspective
The report highlighted the lacklustre growth of global seaborne trade, currently increasing at a pace notably slower than the historical average, and the slowest since the debilitating world economic recession seven years ago. It also points to uncertain prospects in the immediate future and further ahead, emphasising prominent downside risks.
Surplus capacity, it revealed, is compounding the problem for the shipping industry, with fleet expansion still exceeding demand enlargement across the shipping market as a whole.
The report revealed that there are ample opportunities for developing countries to generate income and employment and help promote foreign trade. A breakdown of the report showed that shipments expanded by 2.1 per cent, a pace notably slower than the historical average. The tanker trade segment recorded its best performance since 2008, while growth in the dry cargo sector, including bulk commodities and containerized trade in commodities, fell short of expectations. While a slowdown in China is bad news for shipping, other countries have the potential to drive further growth.
South-South trade is gaining momentum, and planned initiatives such as the One Belt, One Road Initiative and the Partnership for Quality Infrastructure, as well as the expanded Panama Canal and Suez Canal, all have the potential to affect seaborne trade, reshape world shipping networks and generate business opportunities. In parallel, trends such as the fourth industrial revolution, big data and electronic commerce are unfolding, and entail both challenges and opportunities for countries and maritime transport.
The report showed that the world fleet grew by 3.5 per cent in the 12 months to 1 January 2016 (in terms of dead-weight tons (dwt)). This, stakeholders said, is the lowest growth rate since 2003, yet still higher than the 2.1 per cent growth in demand, leading to a continued situation of global overcapacity. Different countries, it added, participate in different sectors of the shipping business, seizing opportunities to generate income and employment.
“As at January 2016, the top five ship owning economies (in terms of dwt) were Greece, Japan, China, Germany and Singapore, while the top five economies by flag of registration were Panama, Liberia, the Marshall Islands, Hong Kong (China) and Singapore. The largest shipbuilding countries are China, Japan and the Republic of Korea, accounting for 91.4 per cent of gross tonnage constructed in 2015. Most demolitions take place in Asia; four countries – Bangladesh, India, Pakistan and China – accounted for 95 per cent of ship scrapping gross tonnage in 2015. The largest suppliers of seafarers are China, Indonesia and the Philippines, “it stated.
Freight, Maritime Transport Costs
The report revealed that in 2015, most shipping segments, except for tankers, suffered historic low levels of freight rates and weak earnings, triggered by weak demand and oversupply of new tonnage.
“The tanker market remained strong, mainly because of the continuing and exceptional fall in oil prices. In the container segment, 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 throughout the year. In an effort to deal with low freight rate levels and reduce losses, carriers continued to consider measures to improve efficiency and optimize operations, as in previous years. Key measures included cascading, idling, slow steaming, and wider consolidation and integration, as well as the restructuring of new alliances,”UNCTAD said.
The overall port industry, including the container sector, the report said, experienced significant declines in growth, with growth rates for the largest ports only just remaining positive.
“The 20 leading ports by volume experienced an 85 per cent decline in growth, from 6.3 per cent in 2014 to 0.9 per cent in 2015. Of the seven largest ports to have recorded declines in throughput, Singapore was the only one not located in China.
Nonetheless, with 14 of the top 20 ports located in China, some ports posted impressive growth, and one (Suzhou) even grew by double digits. The top 20 container ports, which usually account for about half of the world’s container port throughput and provide a straightforward overview of the industry in any year, showed a 95 per cent decline in growth, from 5.6 per cent in 2014 to 0.5 per cent in 2015, “it sated.
According to UNCTAD, ´during the period under review, important developments included the adoption of the 2030 Agenda for Sustainable Development in September 2015 and the Paris Agreement under the United Nations Framework Convention on Climate Change in December 2015. Their implementation, along with that of the Addis Ababa Action Agenda, adopted in July 2015, which provides a global framework for financing development post-2015, is expected to bring increased opportunities for developing countries.
“Among regulatory initiatives, it is worth noting the entry into force on 1 July 2016 of the International Convention for the Safety of Life at Sea amendments related to the mandatory verification of the gross mass of containers, which will contribute to improving the stability and safety of ships and avoiding maritime accidents.
At the International Maritime Organisation, discussions continued on the reduction of greenhouse gas emissions from international shipping and on technical cooperation and transfer of technology particularly to developing countries. Continued enhancements were made to regulatory measures in the field of maritime and supply chain security and their implementation.
“Areas of progress included the implementation of authorised economic operator programmes and an increasing number of bilateral mutual recognition agreements that will, in due course, form the basis for the recognition of authorised economic operators at a multilateral level. As regards suppression of maritime piracy and armed robbery, in 2015, only a modest increase of 4.1 per cent was observed in the number of incidents reported to the International Maritime Organisation, compared with 2014,” the report said.
It added that most shipping segments, except for tankers, suffered historic low levels of freight rates and weak earnings, triggered by weak demand and oversupply of new tonnage.
The tanker market, it added, remained strong, mainly because of the continuing and exceptional fall in oil prices.
“In the container segment, 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 throughout the year. In an effort to deal with low freight rate levels and reduce losses, carriers continued to consider measures to improve efficiency and optimize operations, as in previous years. Key measures included cascading, idling, slow steaming, and wider consolidation and integration, as well as the restructuring of new alliances.
“The same was true of the dry bulk freight market, which was affected by the substantial slowdown in seaborne dry bulk trade and the influx of excess tonnage. Rates fluctuated around or below vessels’ operating costs across all segments. As in container shipping, measures were taken to mitigate losses and alliances were reinforced, as illustrated by the formation in February 2015 of the largest alliance of dry bulk carriers, Capesize Chartering. Market conditions in the tanker market, however, were favourable. The crude oil and oil product tanker markets enjoyed strong freight rates throughout 2015, mainly triggered by a surge in seaborne oil trade and supported by a low supply of crude tanker fleet capacity,”it stated.
The report describes the work of UNCTAD in helping developing countries improve port performance, with a view towards lowering transport costs and achieving better integration into global trade.
It explores new datasets in port statistics and presents an overview of what these reveal about the port industry in 2015.
It added:“The overall port industry, including the container sector, experienced significant declines in growth, with growth rates for the largest ports only just remaining positive. The 20 leading ports by volume experienced an 85 per cent decline in growth, from 6.3 per cent in 2014 to 0.9 per cent in 2015. Of the seven largest ports to have recorded declines in throughput, Singapore was the only one not located in China.
“Nonetheless, with 14 of the top 20 ports located in China, some ports posted impressive growth, and one (Suzhou) even grew by double digits. The top 20 container ports, which usually account for about half of the world’s container port throughput and provide a straightforward overview of the industry in any year, showed a 95 per cent decline in growth, from 5.6 per cent in 2014 to 0.5 per cent in 2015.”