Shipping industry cycles are constantly influenced by the twin factors of supply and demand, and for investors if it’s not time to worry about one, it’s the other that’s causing concern. With much of the post-financial crisis era focussed on supply-side issues, albeit following a huge shock to demand, risks to seaborne trade growth began to feature more prominently in recent years, but how do things look today?
As the Analysis in SIW 1028 (5th Feb 2016) pointed out, in 2015 worries began to emerge over the state of world seaborne trade. Growth slowed to 2.1%, and the multiple of growth in seaborne trade over global GDP expansion dropped to just 0.6. Turbulence in the Chinese economy in the second half of the year and a drop in global coal imports had weighed heavily, and with seaborne trade accelerating in 2016, but only as far as 2.8%, the average ‘multiplier’ over GDP growth in 2015-16 (see graph) stood at 0.7 cementing observers’ worries over the lack of ‘bang for the buck’ and the long-term prospects for trade growth. The boom of 2002-07, when seaborne trade growth averaged nearly 5% per annum, backed by a rapidly expanding Chinese economy hoovering up bulk cargoes and rapid container trade growth supported by outsourcing of production from the west to Asia, seemed a bit like a distant memory.
Time To Buck The Trend?
However 2017 has seen a turn for the better, and, with the end of the year almost in sight, the projection for seaborne trade growth stands at a healthy 4.1%, with the global total on course to reach 11.6 billion tonnes. Container trade is growing at a rate of more than 5% this year, 44% above projected global GDP growth of 3.6%. Taking into account our forecast for next year the seaborne trade multiplier is set to average more than 1.0 again in 2017-18. This change has reflected a number of dynamics. Oil trade growth may have slowed slightly in 2017 constrained by OPEC cuts, but dry bulk trade is projected to have grown by more than 4%, with Chinese imports proving resilient, and healthy mainlane and intra-regional growth has supported a return to form in box trade growth. Next year looks relatively healthy too with seaborne trade growth currently projected to reach 3.5%.
Who Was ‘Bang On’?
It goes to show that those who thought ‘the glass was still half full’ back in 2015, weren’t entirely off the mark, and that positive drivers still hold weight; cycles take time to turn and sometimes this is hard to see clearly. Negative geopolitical factors have not (yet) quite had the impact some expected and the influence of China, and Asia as a whole, still has some way to go.
Still Has Some Legs
Clearly, the industry still needs to watch closely, and trade growth in reality is probably moderating gradually. Political and economic risks are still evident, and technology is likely to have a huge say in the future. But from today’s standpoint, things haven’t turned out as badly as the pessimists had originally feared. Trading pattern dynamics have a long way to go but the positive news right now is that seaborne trade is back to providing some bang for the GDP buck. Have a nice day.