UNCTAD predicts modest trade growth

Forecasting a modest 2% rise in global maritime trade in 2024 and annual growth rates averaging 3.5% from 2025-2029, UNCTAD’s latest forecast leans on the optimistic side, but only if “significant risks” don’t get in the way.

The optimism in its 2024 Review of Maritime Transport is fuelled by increased demand for key commodities such as bauxite, coal, containerised goods, grain, iron ore, and oil. Additionally, infrastructure developments, technological advancements, and the ongoing transition to cleaner energy are expected to contribute to sustained growth.

Dry bulk trade, measured in both tons and ton-miles, experienced a notable uptick in 2023, primarily driven by a rebound in iron ore and coal imports into China.

Dry bulk trade in tons and ton-miles increased by 3.4% and 4.5% respectively.

Nevertheless, growth is projected to moderate to 2.3% and 1.1%, respectively in 2024 and 2025.

Trade in ton-miles is projected to grow by 3.9% and 0.9%. However, UNCTAD warned that the strong performance of China in 2023 “is not likely to be replicated”.

While iron ore trade is anticipated to continue its upward trajectory due to robust demand from steel producers, particularly in Asia, other segments will also be supported. “Grain trade will likely see moderate growth, driven by increasing global food demand and population growth,” said the report. Minor bulks, including steel and forest products, are expected to grow steadily, supported by construction and manufacturing activities in developing countries.

Freight rates beyond 2024, however, will continue to be at the mercy of several variables. “Disruptions due to the situation in the Middle East and drought in the Panama Canal may continue to affect routes and transit times, keeping rates high if conditions are sustained or worsen. At the same time, changes in demand, supply and fleet profiles, influenced by environmental compliance, will also affect the outlook for dry bulk freight rates in different ways for the different segments.”

Fleet size shift

Looking at the fleet composition, dry bulk fleet growth is expected to shift towards larger, more versatile, and energy-efficient vessels like Kamsarmaxes and Ultramaxes. This strategic shift could help stabilise freight rates by aligning fleet growth with market needs, said the report. However, the demand outlook presents a mixed picture.

“Larger ship segments may struggle due to declining demand for iron ore and coal, influenced by the economic context in China and the weakening of its real estate sector.

Conversely, smaller ship segments could benefit from an increase in grain trade,” UNCTAD said.

More generally, the global fleet is getting older, a risk in itself. At the start of 2024, the report states that the global fleet was made up of around 109,000 vessels (including cargo and non-cargo ships), each weighing at least 100 gross tons. Global fleet capacity grew by 3.4%, slightly up from 3.2% in 2022.

“However, this growth rate is lower than the average of 5.2% recorded over 2005-2023, which was driven by rapid fleet expansion during 2005-2012.”

Beyond the fleet challenges, UNCTAD underscores other significant risks that could hinder a sustainable recovery. “The combination of climate change and geopolitical tensions is probably one of the greatest risks to global maritime trade in decades. These factors threaten the reliability of crucial trade routes and put pressure on global supply chains,” it said. These factors could persist into 2025 and beyond, casting a shadow over the industry’s long-term prospects.

Maritime chokepoints, such as the Suez Canal and the Strait of Hormuz, are particularly vulnerable to such disruptions and the recent geopolitical tensions in the Black Sea and the Middle East have already had a profound impact on global shipping routes. For instance, the disruption of Ukrainian grain exports has forced countries like Egypt to seek alternative suppliers, such as Brazil and the US, noted the report. Similarly, Russian oil exports have been redirected towards China and India instead of Europe.

The Turkish Straits, another critical chokepoint, have also faced challenges due to geopolitical tensions, increased maritime traffic, environmental concerns, and infrastructure limitations. Türkiye’s implementation of stricter regulations in September 2023 has led to delays and congestion, further exacerbating the situation.

Ask of policymakers

Geopolitical events, changes in fleet structure, and trends in commodity demand will continue to influence dry bulk shipping demand. Additionally, the ongoing transition to cleaner fuels and technologies, coupled with uncertainties surrounding future regulations, will pose significant challenges for dry bulk shipping companies.

To mitigate these risks and ensure the continued smooth flow of global trade, UNCTAD advises that policymakers enhance supply chain resilience by investing in infrastructure and technology; strengthen international co-operation and trade pacts to help mitigate geopolitical risks and ensure smoother trade flows; support free trade through a rules-based system and encouraging regional and South-South trade to provide a buffer against global disruptions; and implement sustainable practices and invest in green technologies.

“As the world deals with these challenges, safeguarding maritime lifelines becomes critical,”

said UNCTAD. “Doing so requires international co-operation, strategic foresight and resilience-planning, to ensure that the arteries of global trade remain open, secure and efficient.”
Source: Baltic Exchange