How realistic are today’s long-term sea trade forecasts?
Predictions for world seaborne trade growth have gained greater significance and attention in the context of the shipping industry’s greenhouse gas emissions. Increasing trade volumes, resulting in expanding fleet carrying capacity, could boost emissions. To enable the extent of this problem to be estimated, it is useful to have forecasts of world cargo movements and ship demand which are credible and likely to prove reliable.
A number of long-term trade forecasts emerging recently suggest relatively brisk growth in global seaborne trade volumes, at least through the 2020s, if not beyond that period. In some cargo sectors this expectation could prove a reasonable perspective. Elsewhere though, the brisk growth assumption is debatable and perhaps unrealistic. It seems possible that around two-fifths of the world trade total will be affected by predominantly downwards pressures.
What forms a ‘reasonable’ view, especially of a future trend stretching out over the next decade or several decades ahead, is naturally a matter of opinion. Given the sheer magnitude of imponderables which must be considered and evaluated, it is not surprising that opinions differ. But some forecasts seem to be based too much on sweeping generalisations and ‘trend extrapolation’, rather than on a sounder analysis and assessment of potential changes. Faulty seaborne trade forecasting leads to not only misleading pointers for shipping investments, but also dubious estimates for the industry’s future emissions.
Enhanced role for trade forecasting
As the most powerful and most visible influence on global demand for sea transport, the world seaborne trade volume (tonnes) trend and its percentage annual changes is monitored closely. Another measure, based on the tonne-mile, is a more accurate indicator of ship demand because it includes the trade route or loaded voyage distance element. Trade and demand is in turn reflected in the amount of transportation capacity supplied and performed, explaining why trade forecasts have a large impact on estimates for ships’ contributions to maritime pollution.
In a detailed study published last year the International Transport Forum – an intergovernmental ‘think tank’ integrated within the OECD organisation – stated that “the main driver for the growth of global shipping emissions is the rise of international trade, projected to almost double by 2035”. Such forecasts inevitably raise expectations of a large increase in greenhouse gas emissions from shipping, causing anxiety about the intensification of harmful effects. These concerns about an inexorably worsening emissions trend are often regarded as completely justifiable.
Nevertheless, it still seems valid to question whether any specific trade growth rate adopted as a likely average for a period of 10-15 or more years ahead is necessarily the ‘best’ (expected to prove the most reliable) estimate currently available. Seaborne trade forecasting, similar to most attempts to predict the future, is a highly contentious exercise.
An annual average trade growth rate selected as a prediction for many years ahead may be viewed as acceptable because it seems reasonable, or cautious, or uncontroversial or all of those. Yet the effect of a significant change (either upwards or downwards) of just one percentage point in the average predicted growth could be huge. Such a change to the forecast pace could have a huge impact on the emissions foreseen as emanating from this activity.
Patterns of trade growth
Examining the historical pattern of world seaborne trade growth – including all international movements of all types of cargo by sea – indicates how the trend is evolving. Looking at the graph shown above, it is immediately clear that in the past two decades large variations in annual growth rates have been a feature.
In the 2000-03 period there was a notable disturbance in the pattern of annual seaborne trade growth rates which, nevertheless, remained positive. Later, in 2008-11, a far greater upheaval occurred as a result of the global financial crisis and ensuing economic recession. During this period trade weakness was severe enough to cause an actual big reduction in trade volumes in 2009, an unusual occurrence within the longer historical trend. In the following year, 2010, a rebound to an unusually high expansion rate was recorded, before a return to more ‘normal’ patterns of annual seaborne trade growth from 2011 to 2018.
Given this disrupted and erratic trend, using an average growth rate for the past ten years to assess the relatively recent trade evolution seems unrepresentative. But arguably using the past 8 years from 2011 to 2018, excluding preceding years when heavy distortions prevailed, provides a long enough sequence to result in a valid assessment.
Based on data compiled by Clarksons Research, in 2011 and 2012 at the beginning of the period selected a brisk world seaborne trade performance averaging 4.2 percent expansion in volumes (tonnes) annually was achieved. This growth pace was followed by a slowing over three years to half of that rate, 2.1 percent in 2015. Subsequently a revival occurred over two years returning to 4.2 percent growth in 2017, before a 2018 slowing to 2.6 percent.
Average growth of sea trade volumes in the first half of the eight years period, 2011 to 2014, was 3.8 percent. During the second half, 2015 to 2018, the average decelerated to 3.0 percent, almost one percentage point lower. For 2019 signs suggest a pace similar to both the recent average and the actual 2018 outcome, within a 2.5-3.0 percent range. Averages are different on a tonne-mile basis, 4.2 percent for 2011-2014, and 3.3 percent for 2015-2018. For the future an obvious question is whether this pace is sustainable, or whether it is more likely that a slower pace will unfold. A faster rate seems unlikely.
What is the long-term trade outlook?
Forecasting, especially for the longer-term, is a hazardous exercise because the scope for unexpected events to occur widens as the future period being assessed lengthens. However, it remains potentially useful to attempt some evaluation of the general direction of a trend and the rough magnitude of likely changes foreseeable.
What pointers indicate how the overall global seaborne trade trend will evolve over the next one or two decades or further ahead? An appraisal which is solidly-based on observable patterns and signs of how these may evolve could prove useful, for a variety of purposes. By indirectly indicating demand for sea transport services, and therefore also the amount of shipping activity resulting, it could assist in showing how the emissions trend may develop.
Estimates of future world seaborne trade growth seem to coalesce around an annual average rate of 3 percent as the most realistic outcome that is valuable for planning purposes. Perhaps this view is influenced, to some extent, by a perception that any figure outside a 2-4 percent range probably would be considered implausible, or over-controversial.
Attention has been drawn to a 3.2 percent world sea trade volume growth rate reportedly adopted by an international organisation as an average for the next three decades ahead, a rate described as conservative, implying that it is likely to prove under-estimated. Previously the International Transport Forum (ITF) report published last year estimated international trade growing at a rate of approximately 3 percent annually until 2050. In a more recent analysis published in May this year, the ITF estimates demand for freight transport by sea (based on tonne-kilometres) growing at a 3.0 percent annual rate in the 2015-2030 period, while also indicating a higher 3.6 percent for the longer 2015-2050 period.
Yet not all projections are clustered around 3 percent. In September last year detailed research published by classification society DNVGL suggested a 2.4 percent average world seaborne trade volume annual growth rate in the 2016 to 2030 period, followed by a minimal 0.1 percent annually in 2030 to 2050. Based on tonne-miles growth was estimated at a lower average 2.0 percent in the period up to 2030, and 0.2 percent average over the following two decades. This outlook represents a more cautious view than expressed elsewhere.
Pointing to trade deceleration
Is it conceivable that growth will be modest at best and perhaps weak in the next 10-15 years? A 3 percent annual world seaborne trade growth rate, in line with the average of the past four years, now looks harder to predict. Several large parts – trade in iron ore, coal and crude oil, together comprising two-fifths of the total volume – may not expand much. Assuming that these volumes remain flat, expansion at a rapid 5 percent rate is needed in the remaining three-fifths of the total to enable 3 percent overall growth to occur. That outcome may seem unlikely.
Prospects for a lower 2 percent world seaborne trade volume growth rate are not especially convincing. Coal trade arguably is quite likely to decline, and some slackening of iron ore and crude oil trade is a possibility. If this group saw a marginal 1 percent annual reduction over the period, a relatively brisk 4 percent growth rate for the remaining three-fifths would be required, to reach a 2 percent overall average. Some signs suggest that may not happen.
Another aspect is China’s contribution to the global trend. Since the early 2000s China has been the single largest contributor to global seaborne trade expansion, exceeding growth contributions by all the other large importing countries and areas individually. Consequently a particular focus on China is justifiable.
The graph below shows the increase in volume (the incremental volume) in world seaborne imports of all cargoes in each year, and the proportion of the total increase comprised of China’s imports. Calculations are derived from Clarksons Research data. In the years from 2011 to 2018, China’s additional imports represented widely varying proportions of the additional world imports. During the entire 8 years’ period China’s annual average was one-third of the total (34 percent) and in the most recent three years, 2016 to 2018 the average was slightly higher at 38 percent.
Analysis of China’s import demand across the range of cargoes received indicates that annual incremental volumes, during the decade or longer ahead, may not be as large as seen in recent years. Moreover incremental volumes may decrease as a proportion of the total world increment. Prospects for some cargo movements into China are positive. But for others comprising large parts of China’s total, such as coal, iron ore and soyabeans (these three commodities formed 54 percent of the country’s imports total in 2018), the outlook is either for flat or reduced volumes.
Many uncertainties surround the outlook for both global and China imports during a period stretching far into the future. In the short term at least, intensified international trade friction is having a negative impact. Long-term forecasts are tentative and to a great extent speculative. Nevertheless, analysis of entire cargo sector trade trends, and of China’s role, points to the probability that slower world seaborne trade growth is foreseeable, perhaps averaging no more than 2 percent annually.
Implications for decarbonising
It is evident that how world seaborne trade develops – its volume and pattern – is a profoundly influential aspect. Expectations for trade are a major influence on forecasts of demand for shipping services, and shape views on the market demand/supply balance and freight rates and ship investment. Predictions for trade, as well as numerous other factors, have a large impact on calculations of future carbon emissions growth in international shipping.
As noted by the ITF’s study published last year “it is uncertain how future transport demand will evolve. All projections of shipping emissions are based on underlying transport demand assumptions that might not materialise”. This study incorporated two developments, seen as possibilities, in a ‘baseline scenario’: rapidly declining trade in fossil fuels and further trade regionalisation. These could restrict emissions from shipping. Changes in maritime routes and modal shifts among shipping sectors were expected to have relatively insignificant effects.
In one outcome illustrated in this analysis, there is no growth in CO2 emissions by 2035, from 2015 levels. The ITF’s baseline projection shows annual emissions increasing by about one-quarter (23 percent) during the period to 2035 when ‘business-as-usual’ assumptions are adopted. An alternative projection based on reduced fossil fuels trade and additional intraregional trade shows initially rising emissions into the early 2020s, followed by a decline back to the 2015 emissions volume. Those calculations illustrate how trade assumptions have a large impact on shipping industry greenhouse gas estimates.
A fresh view of the future influence of seaborne trade, and other factors, on carbon emissions will result from the fourth International Maritime Organization study of greenhouse gas aspects. This new analysis is due for completion next year, updating the third study published five years ago. Comments by the IMO, amid preparations for the revised analysis, suggested that the effects of some influences on future CO2 emissions are relatively well understood. But the IMO also argued that “it is much less understood how future transport demand may develop”, again emphasising uncertainties surrounding long-term seaborne trade projections.
In connected comments, international shipping association BIMCO argues that “credible and realistic projections” for world economic activity are essential for the forthcoming IMO study. Gross domestic product growth expectations are closely related to forecasts of sea trade, although historically the relationship varied. An analysis prepared by independent consultants, for a BIMCO submission to the IMO study workgroup, stated that when developing climate policy scenarios “a clear decoupling between GDP and fossil fuel usage is envisaged”. This remark alludes to future sea trade in oil, coal and gas being not related so closely to GDP.
A controversial forecast, perhaps
Sea trade expansion in the longer term also could be restricted by several emerging influences which reflect economic, environmental or technological pressures: reshoring, the circular economy, additive (3D) manufacturing and robotics. How much impact these influences will have is not clear, but largely negative consequences for international trade are often envisaged.
More detailed research may confirm that a 3 percent annual average global seaborne trade growth rate, for the next 10-15 years or longer, is now looking much less realistic than previously. A 2 percent annual average increase may be seen as having greater credibility based on the latest available assessments of future trade influences.
Adopting a prospective annual trade growth rate of one percentage point lower has huge implications for the volume of carbon dioxide emitted by related shipping services. Estimated emissions growth could be well below previous calculations as a direct result, although many other influences also will affect the final outcome.
A presentational difficulty could arise if such a reassessment is adopted, however. Even if based on rigorous analysis and balanced judgements, the revised trade view may not be perceived by the wider community as totally objective, as a justifiable revision. It may be seen as a convenient ‘excuse’ to scale-back adjustments otherwise needed to limit carbon emissions. Sceptics of the shipping industry’s ability and willingness to take drastic measures may not be persuaded. Yet the suggested trade growth forecast modification seems to have merit as a plausible outlook.
Source: Article by Richard Scott, Managing director, Bulk Shipping Analysis and visiting lecturer, London universities for Hellenic Shipping News Worldwide