In International Shipping News 16/11/2016
Amid all the problems pounding the shipping industry, what aspects are becoming brighter? One prominent trend is developing countries increasing their involvement in many parts of global maritime business, according to the Review of Maritime Transport 2016, published by the United Nations Conference on Trade and Development on 7 November. Looking at the broader picture, the Review outlines a cautiously upbeat view of global shipping over the years ahead.
UNCTAD suggests that long-term growth prospects for seaborne trade and maritime businesses are positive, although there are many uncertainties and downside risks. Analysis points to “ample opportunities for developing countries to generate income and employment and help promote foreign trade”. But immediately after publication of the Review, an event occurred underlining the reference to possible difficulties ahead.
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.
Ship supply questions
A chapter of the UNCTAD report discusses 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 percent in 2015. While this increase was the lowest annual percentage for over a decade, it was still far higher than the 2.1 percent growth in demand, resulting in continued global overcapacity.
The authors focus on various positive indicators for shipping markets. However, there is 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.
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 percent of the 1792m dwt world total. Japan is the second largest, with 229m dwt (12.8 percent) and China is in number three position with 159m dwt (8.9 percent). Accompanied by Germany (119m dwt) and Singapore (95m dwt), the top 5 owning countries comprise exactly half of the world total.
Ship demand conundrum
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. The Review’s authors concede that negative developments in the macroeconomic framework are intensifying, and dampening maritime cargo volumes. Nevertheless, they argue 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.
Uncertainties and downside risks listed are: 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 countries. Moreover, another set of factors is 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 Review admits the outcome is unknown.
Among causes for anxiety, and there are many, about the future evolution of world seaborne trade, the so-called fourth industrial revolution is prominent, along with the shared and circular economies. However, the Review 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 could shift established modes of production and consumption, with negative implications for seaborne trade. 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 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.
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. Aspects of shipowning, ship registration and seafarer supply are discussed below.
According to the Review, 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 percent) 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 percent 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, for example.
As is well known, ship registration in the global fleet is highly concentrated in developing countries (including many open registries). The Review shows that, as calculated at the beginning of 2016, this group registers just over three-quarters (76 percent) of the world fleet’s deadweight tonnage. The top 5 flag states are all in this category, jointly registering 57 percent of the world total. Panama is the largest, with 19 percent, followed by Liberia (11 percent), Marshall Islands (11 percent), Hong Kong, China (9 percent) and Singapore (7 percent). Different registries focus on different vessel types.
Providing seafarers for the international shipping market is another large and strongly evolving activity for developing countries. Figures for 2015 are 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 percent of the world total). In second place was Philippines with 216,000 (13 percent), followed by Indonesia’s 144,000 (9 percent). Russia, India and Ukraine also provided substantial numbers. Global demand for seafarers apparently increased by a cumulative 45 percent during the decade ending last year, facilitating the expanding involvement of developing countries.
A positive perspective
The new UNCTAD Review highlights 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 is compounding the problem for the shipping industry, with fleet expansion still exceeding demand enlargement across the shipping market as a whole.
Yet the outlook is not considered to be one of unremitting gloom. Several trends have potential for stimulating seaborne trade. Benefits for developing countries’ involvement in maritime activities are likely to be derived from infrastructure building initiatives, progress with trade policy and liberalisation, increasing populations and urbanisation and growing use of e-commerce. However, some other trends such as the fourth industrial revolution, the shared and circular economy concepts and reduced fossil fuel use may act as restraints. So the picture is mixed, incorporating some promising elements.
Source: Article for Hellenic Shipping News by Richard Scott, Visiting Lecturer, London universities & MD, Bulk Shipping Analysis
