TWN Info Service on WTO and Trade Issues (Nov21/20)
22 November 2021
Third World Network

UN: Maritime trade falls in 2020, but fares better than initially feared
Published in SUNS #9463 dated 19 November 2021

Geneva, 18 Nov (Kanaga Raja) – The impact of the COVID-19 pandemic on maritime trade in 2020 was less severe than initially expected, with maritime trade contracting by 3.8% due to the initial shock in the first half of 2020, but rebounding later in the year, according to the UN Conference on Trade and Development (UNCTAD).

In its Review of Maritime Transport 2021, UNCTAD said that maritime trade is projected to increase by 4.3 per cent in 2021 and that the medium-term outlook for maritime trade remains positive but subject to “mounting risks and uncertainties”.

According to the UNCTAD report, the COVID-19 pandemic disrupted maritime transport, though the outcome was less damaging than initially feared.

UNCTAD said that the shock in the first half of 2020 caused maritime trade to contract by 3.8 per cent in the year 2020.

However, it added, in the second half of the year, there was a nascent, if asymmetric, recovery, and by the third quarter, volumes had returned, for both containerized trade and dry bulk commodities.

On the other hand, there has yet to be a full recovery for tanker shipping, said UNCTAD.

According to the UNCTAD report, maritime trade has performed better than expected partly because the COVID- 19 pandemic unfolded in phases and at different speeds, with diverging paths across regions and markets.

“The rebound in trade flows was also the result of large stimulus packages, and increased consumer spending on goods, with a growth in e-commerce, especially in the United States.”

Later, there was more general optimism in advanced regions from the rollout of vaccines. But it was also partly due to unlocking pent-up demand for cars, for example, and to restocking and inventory-building.

The rebound was fairly swift because, unlike the global financial crisis of 2009, the downturn was not synchronized across the world, said UNCTAD.

In 2021, in tandem with the recovery in merchandise trade and world output, maritime trade is projected to increase by 4.3 per cent, said the report.

According to UNCTAD, the medium-term outlook also remains positive, though subject to mounting risks and uncertainties, and moderated in line with projected lower growth in the world economy.

Over the past two decades, compound annual growth in maritime trade has been 2.9 per cent, but over the period 2022-2026, UNCTAD said it expects that rate to slow to 2.4 per cent.

IMPORTANT ROLE OF MARITIME TRANSPORT

Speaking at a media briefing virtually from Madrid, Spain on 16 November, UNCTAD Secretary-General Ms Rebeca Grynspan said that the first important message coming out of the report is that 80% of global trade in goods is managed through maritime transport.

“That is why this report is key to understanding the current global trade context and the disruptions in the supply chains that have been reported around the world in several very important mainstream media,” she said.

The second message in the UNCTAD report is that the container shipping freight rates have reached historical heights – four to five times higher than the average over the previous decade, she said, emphasizing that it is even higher for the developing countries.

In simulating the impact of high freight rates on price levels, Ms Grynspan said that global consumer price levels may increase by an additional 1.5% as a result of the current increase in maritime transport costs.

“So, this is a huge impact on global price levels. But even worse, the impact on prices for Small Island Developing States (SIDS), for example, is five times higher than that. The simulated impact is 7.5% in additional consumer price inflation for the SIDS.”

On the demand side, the Secretary-General said that there has been a shift in consumer preferences. “If before, you spend more of your income on services, now you spend that in goods, because services are more restricted because of the pandemic.”

The Secretary-General also highlighted the phenomenon of growing e-commerce that has been seen during the pandemic. She further pointed out that the economic stimulus packages from the advanced countries have put additional pressure on imports.

On the supply-side, she said that the pandemic has slowed down operations, and that ships right now are spending 20% more time in ports than before, resulting in a huge increase in delays.

“This means de facto we would need more transport capacity for the same trade but we already said we don’t have the same trade, we have more trade” due to the reasons cited on the demand-side. “So, the bottlenecks that this represents are even stronger,” said Ms Grynspan.

She also pointed out that the world’s ports have limited capacities and port infrastructure investment takes years to plan and undertake.

The current crisis in the supply chain caused by the pandemic is not yet over. Container ships are being held back in congested ports, global supply chains are disrupted, and delivery of COVID-19 vaccines, which are critically needed in developing countries, is also affected, said Ms Grynspan.

Another worrying point is that food security is also at risk because critical goods being imported are not getting to the countries with the fluidity that they used to experience, she added.

According to the FAO, developing regions account for 40% of the global food import bill and that import bill is rising at nearly 20% in 2021 with respect to 2020.

“We are seeing an increase in prices, not in volume. Most of this increase is in prices. And so, the food insecurity is growing in the most vulnerable countries, and also in the smallest countries where the shipping disruption is hitting them harder,” she said.

“In an era of high food prices that have spiked at their fastest pace in over a decade, the surge in shipping costs is posing an additional challenge to the import dependent countries,” said Ms Grynspan.

IMPACT OF COVID-19 ON MARITIME TRADE

According to the UNCTAD report, in 2020, the pandemic disrupted the world economy, cutting manufacturing activity and consumption – with impacts on supply, demand and logistics.

International maritime trade growth had already been weak in 2019 at 0.5 per cent, but in 2020 it declined by 3.8 per cent. Total volume dropped by 422 million to 10.65 billion tons.

Nevertheless, the impact was not as dramatic as initially feared and the maritime transport sector managed to navigate through the crisis, it said.

In 2020, maritime trade increased as a proportion of global GDP, with an increase in the maritime trade-to-GDP ratio as the pandemic induced a shift in consumer demand from services to traded goods.

However, this is likely to be short-lived as demand patterns normalize and spending continues to re-balance back towards services, said UNCTAD.

“In 2021, the narrative is still being driven by the pandemic and related risks, but attention is now moving toward the vaccine rollout, the recovery in growth, and the supply and demand pressures that are currently disrupting trade logistics. At the same time, the industry must consider the longer-term sustainability and resilience of shipping, ports and their hinterland connections.”

The report said around two-thirds of global trade in goods takes place in developing countries. In 2020, developing countries, including the transition economies of Asia, accounted for 60 per cent of global goods loaded (exports) and 70 per cent of goods discharged (imports).

Much of this growth has been in East Asia, especially China, and there has also been a surge in volumes on the Trans-Pacific containerized trade route linking East Asia to North America.

A smaller proportion of trade was in developed countries, which generated 40 per cent of global maritime exports (goods loaded) and 31 per cent of imports (goods discharged).

Asia’s predominance was further strengthened in 2020 as it maintained its 41 per cent contribution to total goods loaded and increased its contribution to total goods discharged. Developing America and Africa maintained their existing, smaller shares.

In 2020, global GDP declined by 3.5 per cent – the largest downturn for 70 years. The greatest impact was in the services sector – in particular in tourism, travel and hospitality.

For maritime trade, however, the plunge in flows was mitigated by the boost in demand from government stimulus packages.

Estimated in March 2021 at around $16 trillion, and concentrated mainly in the United States, Europe and Japan, these packages helped soften the landing. Demand has further revived with the lifting of some COVID-19-related restrictions, said the report.

For 2021, current projections for global GDP are pointing to growth of 5.3 per cent. Progress is again expected to be uneven, with Asia and the United States forging ahead.

The speed and geography of the recovery will depend to large extent on the vaccine rollout and on the structure, scale, and duration of government support, said UNCTAD.

In 2020 taken together, world merchandise imports and exports fell by 5.4 per cent. This decline was far lower than more pessimistic forecasts at the height of the pandemic, it added.

The UNCTAD report said 2021 saw a revival in world merchandise trade. During the first five months of the year, exports were 14.3 per cent higher than in the corresponding period in the previous year, while imports rose by 13.3 per cent.

But the recovery was uneven with exports from Africa and the Middle East as well as from the United Kingdom continuing their decline, it added.

According to UNCTAD, for the full year 2021, the WTO expects world merchandise trade volume to grow by 8.0 per cent though the recovery will be uneven.

This bounce-back in merchandise trade in almost all major economies has been faster than in previous recessions – in 2009 and 2015 – though it has been from a low base and has been more robust in goods than services.

“The rebound was evident across a wide range of sectors including pharmaceuticals, communications and office equipment, as well as minerals and agri-food. Much of this has been due to the release of pent-up demand for durable goods such as cars, as well as strong demand for products that support working from home. In contrast, recovery in the energy sector remains hesitant,” it said.

MARITIME TRADE FARES BETTER THAN INITIALLY FEARED

According to UNCTAD, the sudden dip and subsequent recovery in merchandise trade was reflected in the patterns of maritime trade. In 2020, the outcome was better than initially feared. Volumes dipped by around 12 per cent in May 2020 compared with May 2019, but only by around 2.0 per cent in the fourth quarter compared with the same quarter in 2019.

For 2020, following a contraction of 3.8 per cent, UNCTAD estimates shipping volumes to have lost 422 million tons.

It said the performance varied by market segment, with some sectors performing better than others. Worst hit was tanker shipping, but there was less impact on containerized trade, gas shipments, and on dry bulk commodities such as iron ore and grains.

The report said that the second half of 2020 saw a nascent recovery – though asymmetric across market segments.

There was a return in volumes for containerized and dry bulk commodities, but tanker shipping awaited a full recovery in global demand. At the same time, the sudden boost in demand stumbled into shortages – of shipping capacity, and of containers, and equipment.

“As a result, freight rates surged, with proliferating surcharges. This may have bolstered shipping profitability but it put supply chains under strain, while adding to port congestion and increasing delays and dwell times, and leading to a general decline in service reliability.”

The pandemic has proved to be an asynchronous, multi-wave event, as COVID-19 outbreaks lead to sequences of lockdowns and various restrictions. In 2020 these disruptions were exacerbated by other events such as the closure in China of the port of Yantian, which is a critical international container terminal, and the week-long blockage of the Suez Canal, with further problems in 2021 as a result of extreme weather events, said the report.

It noted that for some of the major industries in Europe, these bottlenecks are causing shortages of inputs and delays in delivery, and generally holding up the recovery. Automotive plants, for example, had to close temporarily due to missing critical components and parts.

“This confluence of factors exposed the vulnerabilities of supply chains and of their underlying maritime transport systems. They have also amplified the call for near-shoring and reduced the attractiveness of long-haul trade and extended supply chains,” it said.

When adjusted for distance traveled, however, the decline in maritime trade in 2020 was lower – falling by only 1.7 per cent, to an estimated 58,865 billion cargo ton-miles, said UNCTAD.

But there were different outcomes for different types of cargo: oil decreased by 7.0 per cent and containerized trade by 1.5 per cent, while there was an increase of 1.3 per cent in dry bulk trades (iron ore, coal, and grain) and of 6.7 per cent in gas shipments, including liquified petroleum gas (LPG) and liquified natural gas (LNG), it said.

It said international maritime trade flows were sustained in 2020 by the rapid economic rebound in China with a 9 per cent increase in maritime import demand, in particular imports of iron ore and grain. Maritime trade flows were also supported by China’s exports of containerized goods to the United States.

Meanwhile, lower demand for oil, and cuts by major OPEC+ oil producers and oil production, have continued to keep a lid on the recovery in tanker shipping.

UNCTAD said that the shipping market hardest hit by the pandemic has been the oil trade. Between 2019 and 2020 it estimates that tanker trade, including crude oil, refined petroleum products, and gas, slipped by 7.7 per cent, with volumes down from 3.2 billion to 2.9 billion tons.

The steepest drop was for seaborne crude oil at 7.8 per cent, as total volumes fell to 1.7 billion tons, while crude oil imports declined in most key importing markets including the United States, Europe, India, Japan, and the Republic of Korea, with the only increase being in China, by 8 per cent.

UNCTAD said that the demand for crude oil in 2020 reflects a reduction in demand for fuel – Jet A for aircraft, gasoline for automobiles, and diesel for trucks – with volumes declining by over 10 per cent.

While road travel is expected to increase, long-distance aviation prospects remain uncertain, awaiting a worldwide rollout of vaccines, it added.

The tanker trade has suffered from weak oil demand, high inventories, and cuts in oil supply by OPEC+ members.

That said, 2021 should see an improvement as demand gradually recovers and supply increases. Starting in August 2021, as oil prices hit their highest levels in more than two years, OPEC+ members agreed to phase out 5.8 million barrels per day of production cuts.

“Meanwhile, a lifting of the US sanctions would increase exports from the Islamic Republic of Iran, which could displace production from other locations but nevertheless increase the demand for tankers.”

With an increase in OPEC production and the expansion of Asian refineries, there is likely to be more demand for very large crude carriers, said the report.

In the longer term, tanker demand will be affected by the current global energy transition, which implies a change in the energy mix. Elsewhere, as more refineries in some advanced economies close, changes to oil trade patterns are likely to intensify, it added.

Total dry bulk trade fell by an estimated 1.5 per cent in 2020, as volumes slipped to 5.2 billion tons. China’s rapid economic recovery has boosted its import demand so it could take up extra cargo generated by suppressed demand in other regions, the report said further.

It noted that iron ore trade remained unperturbed as shipments increased by 3.2 per cent to 1.5 billion tons. Grain trade also held firm, increasing volumes by 7.1 per cent.

It said supporting factors included a record Brazilian harvest, the returning United States-China trade, and better prospects in pig farming in China following the recovery from the 2018 African swine fever outbreak.

In 2021, seaborne dry bulk trade is projected to expand by 3.7 per cent, with iron ore and grain trade growing steadily, a rebound in minor bulk volumes and more coal trade, said the report.

In 2020, full box trade fell by just 1.1 per cent to 149 million twenty-foot equivalent units (TEU). This was a better outcome than initially feared and quite an accomplishment compared to the 8.4 per cent plunge in 2009 following the financial crisis.

After the shock in early 2020, volumes swiftly returned, as consumer demand was boosted by stimulus packages and measures to support incomes, the report added.

According to UNCTAD, the bounce-back in 2021 reflected easing economic impacts and the unlocking of pent-up demand, as well as restocking and building inventory.

But there was also a shift in consumption patterns away from services and towards goods, notably for health products and pharmaceuticals, as well as home office equipment, along with changes in shopping patterns and the expansion of e-commerce.

“The surge in trade was welcome but on such a scale that shipping services and port operations were often unable to keep up, resulting in logistical bottlenecks. By the end of 2020 and until the first half of 2021, the whole industry, including shipping, ports, shippers, and inland carriers struggled with shortages in containers, equipment and shipping capacity.”

This has added to port congestion and reduced service levels and reliability, while also increasing freight rates and surcharges, said the report.

“The crunch in container shipping in 2021 revealed many logistical problems, inefficiencies and vulnerabilities that are threatening the sustainability of the recovery and the competitiveness of supply chains.”

In May 2020, global schedule reliability had been 75 per cent, but in May 2021, it was only 39 per cent and in that month the average delay for late vessels was six days – down from the February peak of seven days, but still higher than that for most of 2020.

At the same time, however, freight rates and surcharges, and fees, including demurrage and detention fees, had soared, though the latter rates were inconsistent across ports and carrier.

For ports, the years 2020 and 2021 were highly disruptive. In 2020, global container port throughput fell by 1.2 per cent, to 815.6 million TEU.

For 2021, however, volume is projected to grow by 10.1 per cent as the global economy and trade recover, along with increasing optimism arising from the vaccine rollout, said UNCTAD.

OUTLOOK GOING FORWARD

UNCTAD said that as the global economy moves towards its next normal, there are optimistic signs for maritime trade. Some of the pandemic’s impacts and legacies could linger, but the short-term outlook is generally positive.

According to the UNCTAD report, global economic prospects improved by late 2020, supported by vaccine rollout in advanced regions, the possibility of additional spending in some major economies, and the easing of containment measures and restrictions in some parts of the world.

It said while emerging trends are encouraging, uncertainty remains as the sustainability of the nascent, fragile and divergent recovery depends on the pandemic’s path and a broader rollout of vaccines worldwide.

UNCTAD said that it projects shipping volumes to increase by 4.3 per cent in 2021, and exceed their 2019 levels, with containerized trade expected to grow by 7.7 per cent.

Over the 2022-2026 period, total maritime trade is expected to grow 2.4 per cent annually – compared with 2.9 per cent over the previous two decades. Maritime trade is projected to moderate along with GDP, it added.

“The intensified cost pressures, inefficiencies, and vulnerabilities in the maritime supply chain, driven primarily by the COVID-19 disruption and its knock-on effects on shipping and ports, could continue to disrupt supply chains, raising both production costs and consumption prices.”

“But these pressures are expected to ease when global demand patterns are normalized, manufacturing capacity comes online, and logistical assets are optimized to improve the balance between supply and demand,” it said.

A further concern is trade protectionism and trade tensions between China and its trading partners, including the United States and Australia.

Governments may also resort to trade protectionism to mitigate discontent and social tensions arising from the impact of COVID-19 on employment and social inequalities, said the report.

On the upside, the recovery should be driven by fiscal support measures, though there is uncertainty regarding the duration of the current stimulus packages and government spending while developing countries continue to be under pressure – having limited fiscal policy space and low access to vaccines, it added.

The long-term outlook will be shaped by a range of continuing structural trends. These include changing patterns of globalization, the drive for more-resilient supply chains, changes in consumer spending and the growth of e-commerce, the need for environmental sustainability, the global energy transition, and the continuing uptake of digitalization, UNCTAD emphasized.

Reflecting on the shift in globalization patterns, the report said even before the COVID-19 pandemic, global value chains were being increasingly shaped by rising demand and new industry capabilities in the developing regions, and growth in automation and robotics, the shift from tradeable goods to services, and limited growth in vertical specialization and global fragmentation of production that reflect maturing value chains in China and the United States.

The hyper-globalization of the late-1990s and early-2000s appears to be decelerating. Enterprises, particularly in automotive, computer and electronics industries, are aiming to locate production closer to demand and consumption markets, said UNCTAD.

“Developing countries are increasingly consuming their own products and reducing their imports of intermediate goods while creating more comprehensive domestic supply chains.”

Decisions will also be shaped by recent episodes of shipping network disruption (Suez Canal blockage, surge in COVID-19 cases in South China), chip shortages that close car manufacturing, shipping delays and soaring costs.

Existing shifts in globalization patterns can be expected to accelerate, said UNCTAD.

It said some countries are also aiming for greater self-reliance particularly in goods considered to be strategically valuable, such as pharmaceuticals and medical equipment, and new technology.

This is illustrated by initiatives such as Made in China 2025, Buy American, Strategic Autonomy in Europe, and Self-sufficient India – as well as incentives to move supply chains closer to home in Japan, the Republic of Korea and Taiwan Province of China.

In the United States, the new administration has already indicated its intention to build supply chains that rely less on China for strategically important products.

And in China, the recent 14th Five-Year Plan is expected to boost domestic consumption and expand the domestic market for China’s manufactured goods.

While the pandemic could deepen pre-existing changes to globalization patterns, it has also reaffirmed China’s important role in sustaining international trade.

With around one-third of global trade, China is showing the resilience and determination to remain the “factory of the world”, said the report.

Since 2018, the United States has increased tariffs, but rather than inducing a return of production to the United States this tended to shift manufacturing within Asia. In 2020, Cambodia, for example, took over a large part of China’s market share in US imports of Christmas lights.

During the same period, exports of bikes to the United States from Cambodia jumped by 478 per cent and from Taiwan Province of China by 30 per cent.

“Tariffs have not provoked a large-scale near-shoring and have had little impact on ton-miles as containerized exports from China or neighbouring East Asian countries hardly affect the distances travelled to the United States.”

UNCTAD said that an outright reversal of globalization will be difficult. Global supply chains are the product of years of investment, relationship-building, and knowledge acquisition, and China’s large production and logistical capacity and economies of scale are difficult to replace, it added.

Some companies are nevertheless aiming to diversify production sites, with a “China+1” strategy and will continue to look for alternative sources which will require adjusting networks and inventory management strategies and transport and shipping routes.

This is resulting in new trade flows as observed in the case of China-Mexico-United States, or from other countries in East Asia to the United States.

Morocco, and Central and Eastern Europe can be expected to strengthen their position as new suppliers to the North American and European consumer market, for cars, electronics, and heavy machinery.

The pandemic and its fallout are likely to hasten this transition, but the outcome will likely be a blended approach, balancing localized and global sourcing depending on product and geography, said UNCTAD.

These trends have major implications for maritime transport, as carriers need to re-define distances and routes and offer more flexible shipping services. A re-configuration of supply chains has implications for vessels, sizes, ports of call, and distance travelled, it added.