Two weeks ago, this page took a look at the supply side problem facing the shipping industry. Now, the analysis switches the focus to demand, trade growth, its cycles and the extent to which it might absorb supply.
Trading Up:Let’s start with the global trade statistics. In 1990, world seaborne trade stood at 4.2 billion tonnes. By 2000 it had increased to 6.0 billion tonnes and it is projected to reach 9.4 billion tonnes in 2012.
As the graph shows, although global seaborne trade declined by 4.5% in 2009, on the back of the global economic crisis, it has averaged 3.6% per annum since 1996. That’s not such a bad performance at all. However, there has been year-to-year volatility in the rate of trade growth over the period, from the aforementioned low in 2009 to peaks of 7.1%, 6.8% and 9.7% in 2000, 2004 and 2010 respectively.
Growth Cycles
But, just how volatile are the cycles in trade growth? Well, the graph also shows the 5-year moving average of seaborne trade growth. And, despite a high of 5% and a low of 2.3%, it’s clearly fairly steady, with the 5-year average growth rate in only 5 of the 22 years since 1990 deviating more than 1% from the long-term average rate. So, on average, whatever the 5-year period, one could have expected seaborne trade to grow 16-20% in total.
Tonnes and Tonnes
However, consistent as trade growth cycles may have been, that’s not always enough to balance the prevailing level of supply growth. The impact of this can be seen in the ratio of trade to capacity (see graph). In 1990, there were 6.9 tonnes of cargo per deadweight of ship capacity. This increased to a peak of 8.0 tonnes per dwt in 2004 but then declined to 6.8 tonnes per dwt before the onset of the downturn in 2008. The ratio is projected to decline 6.0 tonnes per dwt this year, implying an oversupply which is putting freight markets under immense pressure.
In reality, of course, regional trading patterns and tonne-mile demand trends change over time and can impact on this ratio. Nevertheless, on the basis of continued “cyclical” trade growth of 3.6% per annum and the projected delivery of the current orderbook (with no further capacity addition), cargo tonnes per dwt could theoretically increase back to 6.7 tonnes per dwt within a five year cycle, not too far from the long-term average of 7.1.
Steadying the Ship?
So, with global seaborne trade growing steadily, does everything really come to those who wait and see the cycle through? As pointed out two weeks ago, shipyards are keen to generate business, but just how much ordering for future delivery this will generate over the next few years is still open to serious question. Trade growth might help to steady the ship but, to get the balance right, shipping investors’ will still need to get their timing spot on.
Source: Clarksons