Developing Nations Hit by Container Shipping Squeeze
Seaborne trade grew by 2.6 percent in 2016, to reach 10.3 billion tons, but the pace remained below the historical three percent average, and demand for maritime shipping continued to lag behind supply, a new United Nations report says. Forecasts for 2017 point to a slightly higher growth rate of 2.8 percent. Projections for the medium term point to a compound annual growth rate of 3.2 percent between 2017 and 2022.
The UNCTAD Review of Maritime Transport 2017 says the world’s commercial fleet grew by 3.2 percent, to reach 1.86 billion dwt in early 2017, and that the persistent imbalance between supply and demand is keeping freight rates and earnings low in most segments.
The squeeze was felt in particular by the container shipping market, which last year reported a collective operating loss of $3.5 billion. Increased consolidation among carriers could bring some order to the market and the pooling of cargo could improve economies of scale and reduce operating costs. Yet there are risks associated with the recent mergers and mega alliances among container carriers.
“The risk is that growing market concentration in container shipping may lead to oligopolistic structures,” says Shamika N. Sirimanne, Director of the UNCTAD Division on Technology and Logistics. “In many developing countries’ markets, there are now only three or even fewer suppliers left. Regulators will need to monitor developments in container shipping mergers and alliances to ensure there is competition in the market,” Sirimanne says. Revisiting the rules governing consortiums and alliances may be necessary to determine whether these require new regulations to prevent market power abuse and to balance the interests of shippers, ports and carriers.
World container ports face mounting pressure from ever larger ships. Between 2000 and 2016, a total of $68.8 billion in private investment was committed across 292 port projects aimed at improving port infrastructure and superstructures. Although investment is key for ports to improve, the amount needed to accommodate ever larger ships may not be worth the extra cost, unless the bigger vessels guarantee more cargo. Otherwise, ports will have invested in larger yards and additional equipment to handle the same total volume.
The Review of Maritime Transport 2017 says that, on average, transport and insurance costs account for about 15 percent of the value of imports, but that this is much higher for smaller and more vulnerable economies; on average 22 percent for small island developing States, 21 percent for the least developed countries and 19 percent for landlocked developing countries.
The persistent transport cost burden on many developing countries stems from lower efficiency in ports, inadequate infrastructure, limited economies of scale and less competitive transport markets.
More than 80 percent of country pairs do not have a direct connection. This includes large trading nations that lie across the same ocean, for example Brazil and Nigeria.
“A key question for trade and transport analysts is whether there are no direct connections between the two countries because there is not enough demand, or whether there is not much trade between them because the two trading partners are not well connected,” notes Jan Hoffmann, Chief of the Trade Logistics Branch of UNCTAD.
The report explains that lacking a direct maritime connection with a trade partner is associated with lower export values – up to 40 percent lower when there is an additional trans-shipment – and that country pairs can reduce trade costs by nine percent when they add a direct maritime connection.