- Free trade agreements likely to improve shipping traffic in North American and Canadian ports
- China’s new strategy on shipping impacts globally
- Mixed reactions on the growth of global economies, shipping industry to face surplus supply over demand of shipping containers
The marine forecast 2018 for transpacific and other major shipping trade routes indicates that recovery from the dark days of 2015-16 is influence by a number of political, economic and technological factors.
How politics impact?
China, a pivotal player in the global shipping traffic, has chosen to take a strategic decision on its economic development model. Economist David Buckby says that the proposed economic model which was discussed in its 19th [Communist] Party Congress, focuses on reducing the debt while reclining from its efforts from a long term economic growth targets.
This decision will likely affect China’s global imports and exports market, and will drop its GDP growth roughly 16 to 17 percent in the next 50 years, says McKinsey & Co.’s Container Shipping.
Asia, and China are major containerized-shipping drivers who accounts for 64% of the world’s container throughput in 2016. Also. McKinsey reports that China imported and exported 52 million 20-foot equivalent units (TEUs) in 2015 when compared with only 13 million in 2000. This is a milestone that China has achieved in container trade, which cannot happen elsewhere in the world.
Canada’s shipping industry has much more overhead because of the North American Free Trade Agreement (NAFTA) negotiations, the street-level impact of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and rapidly evolving technologies that promise to disrupt global supply chains.
Buckby added that port volumes would drop if NAFTA collapses.
The United Nations Conference on Trade and Development’s Review of Maritime Transport 2017, feels optimistic on the CETA and the economic partnership agreement concluded between Japan and the EU in July, as positive developments for global trade and shipping. Moreover, its says that the growth of cross-border e-commerce could also drive long-term container-shipping demand.
A report by A.T. Kearney, a global management consulting firm, estimated that tariff raise in the wake of a failure to renew NAFTA, could cut retail sales in Canada by $17 billion and earnings from retail sector gross margin will drift to $25 billion.
Buckby says, “The dirty secret of many free-trade deals is that they don’t tend to have a substantial economic impact, especially if they just address tariffs, which tend to be low anyway, and don’t focus much on breaking down non-tariff barriers.”
What economic forecast says?
A U.K.-based economic research company forecasted a global GDP growth to 3.2% in 2018 from 2.9% in 2017. It also points out four key GDP growth drivers: strong trade growth, low inflation, robust emerging markets and resilience to political uncertainty. Also, projections by the International Monetary Fund’s World Economic Outlook, says that the global economic growth of 3.6% in 2017 will raise to 3.7% in 2018.
Oxford Economics’ predicts that Canada’s exports will rise from 2.9% in 2017 to 4% in 2018. This goes in hand with it imports, which gets down from 3.7% in 2017 to 2.4% in 2018. Yet Canada’s GDP growth will slip to 2.1% in 2018 from 3% in 2017.
In 2017, Hapag-Lloyd, the world’s fifth-largest ocean container company, noted that global container-shipping volume from 2018 through to 2021 is projected to increase between 4.8% and 5.1%.
Threat from Technology
On the other hand, disruptive technology is likely to complicate the market for Vancouver’s Seaspan Corp. (NYSE:SSW), the world’s largest independent charter owner and manager of container ships, and other companies that service the container-shipping industry.
McKinsey noted that advances in robotics and 3D printing using metals, ceramics and other materials could shrink supply chains by localizing manufacturing and eliminating labour cost gaps in other parts of the world. Miniaturization, it added, could also reduce container-shipping demand.
It also red-flagged the growing cybersecurity threats to world shipping supply chains.
While Buckby agreed that CETA will benefit port volumes, he doubted that it would significantly increase cargo through Vancouver and other Canadian ports.
What to expect?
However, the key challenge in 2018 for ports in B.C. and elsewhere in North America, according to analysts, will be similar to what it increasingly has been in 2017, which si “how to handle larger containers ships?”. (See “Pinpointing B.C. Port Infrastructure Priorities,” Business in Vancouver issue 1463; November 14–20).
“This is relevant to both coasts,” Murnane said. “Liners are now deploying up-to-13,000-TEU container ships to the U.S. West Coast. It is beyond the capability of some smaller terminals to welcome and unload these vessels.”
The newly widened Panama Canal has also opened the way for larger transpacific ships to reach East Coast ports directly. Infrastructure and operations in those ports consequently face similar pressures.
Murnane pointed out that port productivity suffers because a mega-container ship can take up to five days to unload. “Some ports are rising to the challenge and investing, but smaller ports and constrained ports risk losing some mainline services.”
According to Walter Kemmsies, managing director, economist and chief strategist of Jones Lang LaSalle’s (NYSE:JLL) U.S. ports, airports and global infrastructure group, container cargo traffic to North America’s West Coast will continue to grow in 2018 but so too will the migration of more transpacific container traffic to Gulf and East Coast ports.
Among the reasons for that cargo diversion south and east, said Kemmsies: West Coast port congestion and importers’ investment in building distribution centres in the Gulf Coast area as ocean carriers launch direct services to China, Japan and other north Asian countries.
Kemmsies added that economic nationalism and geopolitical risks to global shipping and trade will remain high in 2018.
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Source: Business in Vancouver
