TRANSPORT

With few interruptions, global trade activity has consistently outperformed GDP growth by a wide margin. From 1994-2000, annual growth in trade averaged 8.8%. Following a two-year hiatus, trade growth resumed a blistering annual pace of 8.3%. It follows that international trade increased its role in overall global output dramatically over this period. The concurrent exponential increase in computing and communication technology enabled trade to vastly expand its global reach to levels without historical precedent – creating a perception that trade faced almost limitless possibilities.

This mindset left the world largely unprepared for a correction. But the rising importance of trade tied its fortunes more closely to global trends – in essence, the consumption excesses of the West were exported everywhere, and in many locales, these became production and trade-related-infrastructure excesses. As such, at current activity levels there is sizeable surplus productive capacity worldwide.

Shippers agree heartily. The container business – red-hot in the bubble years – is estimated to have tumbled by over 10% in 2009, the worst year by a large margin in the industry’s half-century history. Certain key ports are registering volume declines of up to 30% in the first half of this year. Ports that handle origin-destination shipping are faring better than the large trans-shipment facilities. Singapore falls into the latter category, and year-to-date traffic is well below the average, down by over 16%.

The largest port operators have responded immediately by cutting costs aggressively. Other measures will take more time. Certain port expansions have been delayed, but others are too far along to abort. Shipbuilding also has long lead-times, and strong, heyday-inspired orders are forecast to increase the global container fleet by about 10% annually in the next two years. Put together with the current 10% fleet overcapacity, and even with a global recovery in 2011, container fleet expansion at this rate is bound to keep near-term freight rates suppressed.

Global trade has shown very early signs of growth in the most recent data. It is too early to tell whether this will be sustained, or whether the uptick was temporary. But it does seem that the collapse is over, and that modest growth can be expected in 2010. However, global trade will remain well below peak levels until a more sizable recovery occurs.

Is that likely? Levels of consumption activity in Western markets are generally a lot lower than simple demographic analysis suggests is sustainable over the longer term. As the world economy recovers, activity has lots of potential to grow, and aggressively. International trade is expected to be a key part of this renewed growth, and it is quite likely that at that time – as early as 2011 – international trade flows will again begin to rack up growth that is well ahead of growth in overall GDP.

The bottom line? Gloom surrounds the global shipping world at the moment. But global growth will pick up in the next 12 months, and in the medium term will again put pressure on trade infrastructure.

The views expressed here are those of the author, and not necessarily of Export Development Canada.

©2009 EDC