Home » Breaking News, Maritime » Challenging outlook for shipping as new export orders fall—Bimco

The effects of rising trade barriers, capital flowing out of emerging market economies, and the elevated geopolitical risk are already being felt and bringing a challenging outlook for the shipping industry, according to the Baltic and International Maritime Council (Bimco).

Bimco in a report said that after two years of brighter prospects for economic growth and trade, prosperity has been brought down by adverse trade politics.

New global export orders for goods fell for the first time in two years, as the Global PMI indicator dropped to 49.7 in September from 50.3 in August, ending two years of solid trade growth, said Bimco. Moreover, the rate of expansion in production fell to a two-year low at 52.4. From a longer-term perspective, global trade grew quite slowly between 2012 and 2016, which the report said could indicate “a return to the ‘new normal slow growth’ environment.”

The trajectory is already being felt by the shipping industry as overall business confidence for the year ahead fell to its gloomiest level in two years. “This suggests that global economic growth may weaken more in coming months and quarters,” said Bimco.

With the escalation of the trade war, the International Monetary Fund now expects global economic growth to stall in 2018 and 2019, staying unchanged from 2017 at 3.7%.

The ongoing trade war, which is impacting the shipping industry in many aspects, takes its toll onshore as well. Bimco said that looking at real GDP growth in the next five years, the growth of advanced economies is seen to peak at 2.4% in 2018, followed by a slide down to 1.5% in 2023. On the other hand, emerging markets and developing economies are set to flatten in 2019 at 4.7% and peak in 2020 at 4.9%, before dropping to 4.8% in 2022-2023.

As global GDP growth is set to slow down, absolute trade volumes will do so too. Advanced economies are projected to have the slowest growth and, because of their high trade-to-GDP multiplier, global volumes will be disproportionately affected. Real GDP growth in emerging and developing economies is higher but, because of a lower trade multiplier, volumes will not rise much more than GDP.

“This naturally brings a challenging trade outlook for the shipping industry—on both sides of the world,” said the organization.

Trade in Asia

In Asia—excluding Japan and China—the region appears to be faring better right now than its two giants (Japan and China). “But size does matter and, from a shipping perspective, we need the world’s second- and third-largest economies to do well in order to thrive,” said Bimco.

Being entangled in a trade war with the U.S., China has added tariffs to goods worth US$113 billion during 2018. As opposed to the U.S., China seems to respond to extra tariffs by reducing imports swiftly and dramatically. This goes for imports of crude oil, soya beans and many other commodities, some of which are—and others that aren’t—an official part of the trade dispute.

In Japan, fewer new export orders have been received in August and September, while October reversed that. The decline in trade has been most evident in Asia, as new export orders have fallen in six of the past seven months—April to October. In September, China’s exports fell the most since February 2016; they have now fallen for seven straight months.

South Korea is struggling to maintain growth. The country is about to face its lowest GDP growth in 2018 (2.8%) since 2012 (2.3%)—a downward spiral that is set to reach 2.6% in 2019. The massive state aid given to local shipyards and shipping companies seems like a measure to counter this slide. That measure is not welcomed by fellow shipbuilding nation Japan, which filed an official complaint at the World Trade Organization (WTO) in mid-November 2018.

Looking ahead, Bimco sees global economics facing plenty of headwinds—still growing, but only to the same extent as last year and with plenty of new trade barriers being set up.

“For shipping, this could also mean the demand growth rate is peaking right now, with only limited upside left. If that is the case, owners and operators must prepare for this risk to materialise.”

In September, worldwide manufacturers reported the first drop in export orders in more than two years, the culmination of a year that has turned sour. The main exporters in Asia—Japan and China—are hurting the most. China’s exports have now fallen for six months in a row.

“This could result in a low demand growth rate on the transpacific container shipping trade lanes, to the extent that this is caused by the trade war,” Bimco said.

Photo: Baycrest

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