An answer in plain sight

Malcolm Latarche
Malcolm Latarche

22 March 2017


Over the last week or so, several reports and articles have commented on the lack of volume growth in world trade and the effect it is having on both ships and ports. For example, Clarksons Research in its weekly report says that from 1988 to 2008, growth in world seaborne trade averaged an estimated 4.2% pa, a fairly robust level underpinning long-term demand for ships. The markets at times felt the impact of oversupply but sustained weakness of demand growth wasn’t generally the problem. However, since 2009, the growth rate has slowed, averaging 3.2%, and just 2.8% since 2013. This still equates to significant additional volumes – 1.8% growth in 2015 added 194 million tons – but enough to get market players worrying. Of course, shipowners’ natural response to growing volumes is to add more capacity but this has proved to be the wrong decision especially in the liner market. The fact is that both within and outside the shipping industry, far too much reliance is placed on raw data that rarely tells the true story. As a starting point, most forecasters begin by looking at values rather than volumes and mostly values in US dollars. Very few go beyond the raw data to look at the effect of things such as quantitative easing and exchange rates. However, it is in terms of volumes that most mistakes are made. Think back to what might have been in an average European or US household a decade ago and compare it to today. On the entertainment front, VCRs have been replaced first by DVD and BluRay players and more recently by tiny devices such as Amazon’s Firestick which does not even need media to use with it. Computers, cameras, mobile phones and so much more have also become smaller and for many people a single device which integrates them all is more than sufficient. Even traditional children’s toys and playthings have been ousted by small electronic games machines. In the paperless office, where is the need for printers and even things such as staplers and scissors? In some offices there are even no longer personal desks and chairs. In the wider world, cheap Asian machinery that lasted only a short while is becoming more robust and replaced less often. And so the story goes on. Our modern world and lifestyles are less concerned with volume and weight even if we are prepared to spend more on an all singing and dancing gadget that does everything. Thinking that way highlights why trade values grow but trade volumes do not. Of course such things mentioned above only make up a fraction of world trade overall but when growth is counted in single figure percentages, they can quite easily turn things negative. When a shipowner is contemplating its next new vessels, perhaps the market research should include a home inventory or a walk down the high street.