TWN Info Service on WTO and Trade Issues (Nov20/12)
13 November 2020
Third World Network

COVID-19: Global maritime trade to fall by 4.1% in 2020, says UNCTAD
Published in SUNS #9232 dated 13 November 2020

Geneva, 12 Nov (Kanaga Raja) – The volume of international maritime trade is projected to fall by 4.1 per cent in 2020, due to the unprecedented global health and economic crisis triggered by the COVID-19 pandemic, the UN Conference on Trade and Development (UNCTAD) has said.

In its Review of Maritime Transport 2020, released on 12 November, UNCTAD said that amid supply-chain disruptions, demand contractions and global economic uncertainty caused by the pandemic, the global economy was severely affected by a twin supply and demand shock.

These trends unfolded against the backdrop of an already weaker 2019 that saw international maritime trade lose further momentum, it added.

It said lingering trade tensions and high policy uncertainty undermined growth in global economic output and merchandise trade.

Volumes expanded by 0.5 per cent in 2019, down from 2.8 per cent in 2018, and reached 11.08 billion tons in 2019. In tandem, global container port traffic decelerated to 2 per cent growth, down from 5.1 per cent in 2018.

According to UNCTAD, predicting the timing and scale of the recovery is also challenging, as many factors can significantly influence the outlook.

Bearing this in mind, UNCTAD said its projections indicate that maritime trade will recover in 2021 and expand by 4.8 per cent.

As the debate on the recovery continues to evolve, it is becoming clear that disruptions caused by the COVID-19 pandemic will have a lasting impact on shipping and trade, said UNCTAD.

It said that these disruptions may trigger deep shifts in the overall operating landscape, together with a heightened sustainability and resilience-building imperative. “Potential shifts range from changes in globalization patterns to alterations in supply-chain design, just-in-time production models, technology uptake and consumer spending habits.”

UNCTAD said depending on how these patterns unfold and interact, the implications for maritime transport can be transformational. Further, risk assessment and management, as well as resilience-building to future-proof supply chains and maritime transport, are likely to feature more prominently on policy and business agendas, it added.

“While maritime transport could emerge as a catalyst supporting some of these trends, it will also need to brace itself for change and adapt and ensure that it is also well prepared to enter the post-COVID-19 pandemic world.”

“The global shipping industry will be at the forefront of efforts towards a sustainable recovery, as a vital enabler of the smooth functioning of international supply chains,” said Dr Mukhisa Kituyi, Secretary-General of UNCTAD.

“The industry must be a key stakeholder helping adapt “just-in-time efficiency” logistics to “just-in-case” preparedness,” he added.

At a virtual media briefing held on 11 November, Ms Shamika Sirimanne, Director of the UNCTAD Division on Technology and Logistics, said that global maritime trade is expected to decline by 4.1 per cent in 2020, due to the unprecedented global health and economic crisis brought on by COVID-19.

The year 2020 was a sad situation for maritime trade as it was happening against the background of 2019 where the maritime sector was already depressed, she added.

The projection for 2021 is that maritime trade will grow at 4.8 per cent but on the assumption that world economic output will recover.

She said that like all other sectors, the maritime sector was not prepared for the COVID-19 pandemic. “But what we also noted in the report is that the maritime industry adjusted quite rapidly to the unfolding situation,” she said.

“Even though the sector and all of us were taken unaware by this pandemic, all in all, maritime transport and logistics kept essential goods and trade flows moving,” she added.

In this regard, she pointed to the “unsung heroes who put food on our table”, namely the seafarers, who have been making huge personal sacrifices throughout this pandemic.

MARITIME TRADE LOSING MOMENTUM

According to the UNCTAD report, owing to the slowdown in the world economy and trade, growth in international maritime trade stalled in 2019 and reached its lowest level since the financial crisis of 2008-2009. After rising moderately (2.8 per cent) in 2018, volumes expanded at a marginal 0.5 per cent in 2019.

A number of factors weighed on the performance of maritime trade. These included trade policy tensions; adverse economic conditions and social unrest in some countries; sanctions; supply-side disruptions, such as the Vale dam collapse in Brazil and Cyclone Veronica in Australia; and low oil demand growth.

UNCTAD estimates the total volume of maritime trade in 2019 at 11.08 billion tons. It said growth in maritime trade decelerated in line with the slowdown in world GDP growth. Data also point to a negative outlook for 2020, with world GDP and maritime trade projected to contract by 4.1 per cent.

“The onset of the pandemic in early 2020 and its fallout on world economies, travel, transport and consumption patterns, as well as manufacturing activity and supply chains, are causing a global recession in 2020,” it said.

Noting that shipping is a derived demand largely determined by developments in the world economy and trade, UNCTAD said that negative economic and trade trends affected maritime trade growth in 2019.

“Global economic growth decelerated in 2019 against a backdrop of lingering trade tensions and high policy uncertainty.”

Growth in world GDP slowed down to 2.5 per cent, below 3.1 per cent in 2018 and 1.1 percentage point below the historical average in 2001-2008.

Developed and developing economies alike were affected, reflecting the continued trade tensions between China and the United States and the overall weakening of the world economy.

Global merchandise trade contracted in 2019 as manufacturing activity slowed over the course of the year. Rising tariffs have heightened policy uncertainty, undermined investment and weighed on global trade, said UNCTAD.

In 2019, world merchandise trade volumes declined by, and fell by 0.5 per cent, its lowest level since the financial crisis a decade earlier.

The negative trends were mainly driven by a contraction in imports from developing countries, including China, other emerging Asian economies and developing America, said UNCTAD.

SOME TRENDS IN MARITIME TRADE

According to the UNCTAD report, in 2019, developing economies continued to account for the lion’s share of goods being loaded (58 per cent) and unloaded (65 per cent) in seaports worldwide.

Together, developed economies and economies in transition generated 42 per cent of global merchandise exports by sea (goods loaded) and imported 35 per cent (goods unloaded) of such global trade.

While the role of developing regions as a source and destination for maritime trade is significant, developing economies are not a homogenous group, said UNCTAD.

The grouping includes countries and economies in varying stages of development and degrees of integration in the world’s manufacturing and trading networks. Much of the growth recorded over the past decade is largely driven by fast growing emerging developing countries, most notably China.

These countries have also been driving the structural shift in trade patterns observed since 2013, whereby volumes unloaded in developing countries exceeded volumes loaded, said UNCTAD.

“The shift is a reversal of a historical pattern where developing countries acted as suppliers of large-volume low- value raw materials imported by developed countries,” it added.

In 2019, 41 per cent of the total goods loaded (exported) were sourced from Asia and 62 per cent of total goods unloaded (imported) were received in this same region.

The contribution of developing America and Africa to maritime trade flows remained marginal. In comparison, Asia has benefited from a greater integration into global manufacturing and trading networks, promoting intra-regional trade.

Capitalizing on the fragmentation of globalized production processes, Asia has become a maritime hub that brings together over 50 per cent of global maritime trade volumes, said UNCTAD.

According to the UNCTAD report, dry cargo continued to account for over two thirds of total maritime trade volumes, while liquid bulk commodities, including crude oil, refined petroleum products, gas and chemicals, accounted for the remaining share.

In 2019, growth in all market segments decelerated. Trade in dry cargo expanded at 1.1 per cent over 2018, and tanker trade volumes contracted by 1 per cent. In 2019, the United States increased its merchandise exports to the rest of the world, which helped offset to a certain extent reduced exports to China.

Less than 2 per cent of world maritime trade in metric tons and 7 per cent of containerized cargo are estimated to be subject to the new tariffs introduced by China and the United States between 2018 and 2019, said UNCTAD.

It is estimated that additional tariffs curbed maritime trade by 0.5 per cent in 2019, the overall impact of which was mitigated by substitution trends, that is to say, by exporting and/or importing from alternative markets, and the extent to which demand for tariffed goods is sensitive to increased tariff levels.

The quest for alternative markets and suppliers resulted in changing trade patterns and a re-direction of flows away from China towards other markets, especially in South-East Asia, thereby promoting the deployment of smaller vessels in intra-Asian trade, said UNCTAD.

Between 2017 and 2019, all major shipping segments experienced declines in exports of tariffed goods. Although United States exports of such goods were re-directed to new markets, they failed to fully compensate for the volumes lost to China. This is the case for dry bulk commodities exports, said UNCTAD.

A greater number of exports to the rest of the world may have added volumes but did not support maritime trade in ton-miles, as countries importing more dry bulk commodities from the United States were at a shorter distance, compared with China. Viet Nam benefited the most from the changing trade patterns triggered by trade tensions, said UNCTAD.

Although there has been some migration in sourcing to other countries in South-East Asia since 2018, the market shares of Cambodia, Indonesia, Malaysia, the Philippines, Singapore and Thailand did not increase at the same pace as those of Viet Nam.

“All in all, 2019 was a weak year for shipping and maritime trade. On the upside, a hard Brexit was avoided or delayed, as it remains to be seen how the new trade relations between the European Union and the United Kingdom will evolve,” said UNCTAD.

There was also an apparent easing in the trade tensions between China and the United States that may be associated with the first phase of a trade agreement between the two countries signed in January 2020, it added.

Initial expectations were that a moderate improvement in global economic conditions would occur in 2020.

However, the unprecedented global health and economic crisis triggered by the COVID-19 pandemic in early 2020 undermined the growth prospects for maritime transport and trade.

“A black swan event that is extremely rare and unpredictable, with potentially severe consequences, the pandemic and its global fallout transformed the world,” said UNCTAD.

While making a precise assessment of the immediate impacts and longer-term implications is a challenging task, there is no doubt, however, that the outlook has significantly deteriorated and has become more uncertain, it added.

MARITIME TRADE IN ERA OF COVID-19

According to UNCTAD, initially localized in China, the pandemic evolved rapidly and became a global game changer by the first quarter of 2020.

The spread of the disease worldwide and the consequent disruptions to societies and economies have far-reaching implications, including for transport and trade, it said.

Amid supply-chain disruptions, falling global demand and global economic uncertainty caused by the pandemic, the global economy has suffered dislocation, first at the supply end, then at the demand end.

Since more than 80 per cent of world merchandise trade by volume is carried by sea, the impact of the pandemic on maritime transport can have far-reaching implications, it cautioned.

The impact is magnified by the role played by China in maritime trade, as prosperity within the shipping sector has long been strongly tied to that country.

In 2003, amid the outbreak of severe acute respiratory syndrome, China made up 5 per cent of global GDP. Today, this figure stands at 16 per cent. In 2019, China accounted for over 20 per cent of world imports by sea, up from less than 10 per cent in 2003.

While its share of total exports has remained stable at 5 per cent of the world total since 2003, its share in global container exports has increased.

In this context, its maritime trade has ripple effects on all shipping market segments, and supply-chain disruptions involving China naturally send shockwaves across shipping and ports worldwide, said UNCTAD.

As the pandemic weighed down on the maritime trade of China, especially during the first quarter of 2020, global maritime trade was bound to be affected. In addition to the sector’s high exposure and sensitivity to developments in China, restrictions on vessels and crew in many ports, labour force shortages and restrictions on their movement, and operational challenges have sent shipping into unchartered waters.

UNCTAD said impacts are being felt across the board, ranging from maritime trade flows to vessel movements, vessel crew changes, capacity deployed, port operations, warehousing capacity, hinterland connections and inland logistics.

UNCTAD listed four main issues highlighting the type of challenges ahead and emphasized the need for maritime transport to act as a trade facilitator, supply-chain connector and key partner in promoting more resilient, robust and sustainable transport and trade patterns: the pandemic sent shockwaves through supply chains, shipping and ports; world output and merchandise trade are projected to fall in 2020; global merchandise trade receives both supply and demand shocks; and disruptions caused by the pandemic raise existential questions for globalization.

It said many developing countries will be affected by declining demand and export revenues, remittances, foreign direct investment and official development assistance.

The least developed countries are hit hard, given their limited resources and exposure to supply-chain disruptions such as in exports of textiles and clothing products (for example, Bangladesh).

For the economies of Africa, developing America and Western Asia, and transition economies, an added concern is the sharp fall in commodity prices.

Commodity-dependent countries and small island developing States, which depend heavily on external flows, are particularly vulnerable to external shocks. For the latter, external flows account for nearly 35 per cent of GDP.

UNCTAD estimates that the value of international merchandise trade declined by about 5 per cent in the first quarter of 2020 and that it will diminish further by 27 per cent in the second quarter.

In the first quarter of 2020, the value of trade in textiles and apparel diminished by almost 12 per cent, and that of the office machinery and automotive sectors, by about 8 per cent. In April 2020, trade in energy and automotive products fell by about 40 per cent and 50 per cent in value, respectively.

Significant declines were also observed in the value of trade in chemicals, machineries and precision instruments, with drops above 10 per cent. By contrast, trade in agri-food products and electronics fared comparatively better.

For the full year, WTO projections point to reductions in world merchandise trade ranging from 13 to 32 per cent in 2020, depending on the scenario, before recovering at rates ranging from 21.3 to 24 per cent in 2021.

“Overall, these numbers do not bode well for maritime trade,” said UNCTAD.

It also said that the disruption caused by the pandemic has brought to the fore concerns regarding outsourcing production to distant locations and the need to diversify production and manufacturing sites and suppliers.

About 70 per cent of international trade is linked to global value chains, with China predominating not only as a manufacturer and exporter of consumer products, but also as a supplier of intermediate inputs for manufacturing companies located in other countries.

UNCTAD estimates intermediate products at half of the trade in world goods in 2018 – about $8.3 trillion. In 2020, an estimated 20 per cent of global trade in manufacturing intermediate products originated in China, up from 4 per cent in 2002. The volume of intra-Asian containerized trade and its rapid growth over recent years reflect this trend, it said.

In this context, any disruption to supply chains in China is bound to affect production in the rest of the world, with wide-ranging impacts on machinery, automotive products, chemicals, communication equipment and precision instruments, said UNCTAD.

Japan, the Republic of Korea, Taiwan Province of China, the United States and Viet Nam will be affected the most, it added.

UNCTAD summarized that the pandemic-induced disruption may trigger shifts in globalization patterns, supply- chain configuration and production models, with implications for transport and inventory decisions – all of which are of strategic importance for shipping.

They have the potential to reshape the operational landscape, especially for container shipping, including with regard to vessel size, capacity deployed and operations. For example, greater regionalization would lead to the increased fragmentation of trade flows which, in turn, would make the use of larger vessels more challenging.

“The COVID-19 outbreak revealed the high levels of global interdependency and is setting in motion new trends that will reshape maritime transport and trade,” said UNCTAD.

Various trends are likely to unfold and affect maritime transport and trade. In the post-COVID-19 pandemic world, there will probably be an element of shortened supply chains (near shoring, re-shoring) and redundancy (maintaining excess inventory).

It said the pandemic and its fallout will probably accelerate the transformation of supply chains that started in recent years. Many aspects of supply chains, such as sourcing, inventory and transport, will be reassessed with a view to strengthening resilience and optimizing robustness in the event of future disruptions.

Investing in warehousing and storage, and therefore space, will become more important to ensure the sufficiency of safety stocks and inventories. The established just-in-time supply-chain model will be reassessed to include considerations such as resilience and robustness, for example, stocks and buffers, especially for strategic and necessary goods and commodities.

The pandemic will have a lasting impact on maritime transport and trade, said UNCTAD, highlighting five key trends in maritime transport and trade that will be part of the pandemic’s legacy:

* An accelerated shift in globalization patterns and supply-chain designs.

* A swifter uptake of technology and digitalization, with technology increasingly permeating supply chains and their distribution networks, including transport and logistics.

* Continued shifts in consumer spending and behaviour and evolving tastes that may change production and transport requirements.

* Heightened importance of new criteria and metrics such as risk assessment and management on relevant policy agendas and industry’s business plans and strategies.

* Adjustments in maritime transport to allow adaptation and change in line with the changing operating landscape.

It said there are several priority action areas that can help address the ongoing challenges affecting the maritime transport and trade of developing countries, as well as new challenges arising from the pandemic and its fallout.

These include:

* Fostering economic recovery. It is necessary to support economies on their path to recovery, especially developing countries that are more fiscally constrained, and to help them respond to the multiple shocks triggered by the crisis.

* Allowing trade to support growth and development effectively. Trade tensions, protectionism and export restrictions, particularly for essential goods in times of a crisis, entail economic and social costs.

* Helping reshape globalization for sustainability and resilience. It will be important to carefully assess all options regarding changes in supply-chain design to ensure the best economic, social and environmental outcomes, in line with the Sustainable Development Goals and the 2030 Agenda for Sustainable Development.

* Strengthening international cooperation. The pandemic is a litmus test not only for globalization but for global solidarity as well. Addressing the impacts of the pandemic on global supply chains will require strengthened and coordinated global cooperation and action.

* Assisting shipping and ports in preparing for and adapting to the supply chains of the future. Maritime transport will need to adapt and ensure that it is prepared to support changes in supply chains that promote greater resilience and robustness.

* Promoting resilience-building, including through investment in risk assessment and preparedness. It will be necessary to expand the visibility of supply chains through, among others, control towers and tools that allow for supply-chain disruptions to be predicted and analysed.

* Getting the priorities right and avoiding shortsighted policies. While the pandemic has been an overriding theme throughout 2020 and probably for years or decades to come, other important and potentially disruptive global issues should not be overlooked. For example, climate change is at risk of being pushed to the back burner, given the need to address the immediate concerns raised by the pandemic.

* Enabling greater uptake of technology while minding the digital divide. This means promoting efforts to accelerate the digital transformation to improve and build the resilience of supply chains and the supporting transportation networks.