Shipping association BIMCO describes this diminishing trade multiplier as ‘one of the most worrying trends that has developed recently’, set to affect container shipping demand – and the supply-demand balance – for years to come.
A falling trade-to-GDP ratio, caused by slowing globalisation and increasing protectionist measures around the world, looks set to affect container shipping demand and the supply-demand balance for years to come, according to shipping industry association BIMCO – a trend that air freight operators have been observing for several years.
Describing the falling world trade-to-GDP ratio as “one of the most worrying trends that has developed recently”, chief shipping analyst Peter Sand said: “The raised barriers to trade are here to stay as we enter a new decade, with the shipping industry stuck with the consequences.”
He said the US-China trade war was the clearest example of these extra barriers to trade, adding that although a phase 1 deal was reached in December, “the most difficult issues have yet to be addressed, and BIMCO therefore expects the trade war to continue to plague shipping between the US and China in 2020. Unfortunately, they are not the only countries engaging in tariff wars. The EU also faces additional tariffs from the US and we see trade tensions between Japan and South Korea.”
He said the effects of “the worsening of the fundamental shipping market balances this year” will be felt again in 2020, with BIMCO continuing to “warn that the worsening balance between the supply of ships and the demand will be detrimental to shipowners’ ability to pass on the additional costs associated with compliance of the new IMO 2020 Sulphur Cap”.
Sand added: “It will depend on the freight rates to which extent the additional costs are covered, which in turn depend on the market conditions; the better the market, the easier it is to pass costs on.”
Reflecting on the container shipping market in 2019, he highlighted that “imports of laden containers to the US West Coast declined in 2019, for the first time since 2011”, adding: “There has been no visible frontloading of goods in 2019, and with further tariffs having been narrowly avoided in December, BIMCO does not expect any frontloading boost to come in 2020. Rather, the trade war, as it currently stands, will continue to drag trade volumes as well as freight rates down.”
He noted that intra-Asian volumes have remained flat in 2019 compared to 2018, describing this as “a worrying trend – as without volume growth here, volumes on the longer haul routes out of Asia are unlikely to grow. Furthermore, global container shipping demand grew by just 1% in the first nine months of the year, a development which sparked a flurry of blanked sailings.”
At the same time, the fleet has grown by 3.7%, meaning that “the supply and demand situation is clearly set to be way off-balance”.
Sand added: “On top of that, we will continue to see many deliveries of ultra large container ships (ULCS), sending relatively smaller ships onto other routes. These smaller ships are not necessarily very small, however. Some cascaded ships have capacities over 10,000 TEU, and will enter trades where there is no appetite for them, adding further pressure to freight rates and bottom lines.”
Returning to the falling world trade-to-GDP ratio, he noted: “The trade multiplier could – in theory – return to healthier levels, bringing good news to shipping, if protectionist measures are rolled back and free trade is once again allowed to develop at its natural pace. Although the trade tensions are at the moment being led by the current US White House, they would not necessarily be turned around should the presidency change hands in November.”