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Trade wars and Protectionism put a question mark over positive growth in Global Shipping

Seaborne trade recorded an impressive growth of 4% in 2017, and UNCTAD estimates a similar growth for the industry this year too. Volumes across all segments are set to grow in 2018, with containerized and dry bulk commodities expected to record the fastest growth, albeit at the expense of tanker volumes.

Mukhisa Kituyi, Security General of UNCTAD was quoted saying that “While the prospects for seaborne trade are positive, these are threatened by the outbreak of trade wars and increased inward-looking policies. Escalating protectionism and tit-for-tat tariff battles will potentially disrupt the global trading system which underpins demand for maritime transport.”

This seemingly cautious remark comes against the backdrop of an improved balance between demand and supply that has lifted shipping rates to boost earnings and profits. Freight-rate levels improved significantly in 2017 (except in the tanker market), supported by stronger global demand, more manageable fleet capacity growth and overall supportive market conditions.

Supply-demand developments, namely in the container and dry bulk shipping segments, are expected to continue in 2018. Freight rates may benefit accordingly, although the key factors driving them will be supply-side capacity management and deployment. The projected average annual growth rate in total volumes is 3.8% up to 2023 – Sourced from UNCTAD.

According to the Review of Maritime Transport 2018, 10.7 billion tons of goods were transported last year and nearly half were dry bulk commodities. These include iron ore bound for China, which is one of the main factors fueling the global shipping growth. This is why the recent news on trade wars and the apparent unrest between international relations of two of the world’s biggest economies is reason for concern.

At the epicenter of this warning are the trade tensions between China and the United States and to a rather lesser extent, uncertainty in commercial relations between Canada, Mexico, US and the EU. Rising trade frictions can lead to a trade war that could derail recovery, reshape global maritime trade patterns and dampen the future outlook. US has already decided to issue import tariffs on over $200 billion worth of Chinese goods and might go on to impose additional tariffs in the future.

Other factors driving uncertainty include the global energy transition, highlighted by slowing crude oil shipments from Organization of Petroleum Exporting Countries (OPEC). This has been in part offset by near double-digit growth in shipments of natural liquefied gas – to nearly 300 million tons - in 2017 – with Asia driving demand. 

One of the key drivers of change in seaborne trade has been restructuring by major shipping companies, which have seen “unabated” mergers and acquisitions. According to the report, by June this year, the top 10 shipping lines accounted for more than 70 per cent of all seaborne trade, while just three alliances control 93 per cent of capacity, on the three major East-West container routes.

“Growing consolidation can reinforce market power, potentially leading to decreased supply and service quality, and higher prices,” the report notes. Some of these negative outcomes may already be in effect, it says, citing a decrease in the number of operators in several Small Island Developing States (SIDS) and structurally-weak developing countries.