Clouds lifting, calmer seas returning.
But the 2018 marine forecast for transpacific and other major shipping trade routes also notes that full recovery from the dark days of 2015-16 depends on a number of political, economic and technological factors.
Atop that list for Canada: uncertainty over the outcome of North American Free Trade Agreement (NAFTA) negotiations, the street-level impact of the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) and rapidly evolving technologies that promise to disrupt global supply chains.
There is also the China factor.
“I know analysts have been harping on about it for years,” said Transport Intelligence Ltd. economist David Buckby, “but I think given what the Chinese government has said following the 19th [Communist] Party congress – that it will be switching focus from meeting long-run economic growth targets to other objectives – coupled with recent comments on trying to manage down debt, there is a real chance that Chinese growth will stutter.”
Buckby said the slowdown might not occur in 2018, but it will likely happen over the next few years.
“As the linchpin of so many global supply chains, what affects China is going to impact the rest of the world. I don’t know exactly when that’s coming, but when it does, I think it will adversely impact global port volumes quite significantly.”
McKinsey & Co.’s Container Shipping: The Next 50 Years also points to warning signs about China’s retooled economic development model. It estimates that the swing away from exports of goods to a model based on consumption and services has coincided with a drop in China’s real gross domestic product to between 6% and 7% from more than 10%.
Asia, and China especially, are major containerized-shipping drivers. Asia accounted for 64% of the world’s container throughput in 2016, and McKinsey notes that China imported and exported 52 million 20-foot equivalent units (TEUs) in 2015 compared with 13 million in 2000. It also maintained that China’s dramatic growth and the resultant boom in container trade over the past three decades is unlikely to be repeated elsewhere in the world.
But John Murnane, a partner in McKinsey’s travel, transport and logistics practice, noted in an email response to Business in Vancouver that in the near term, continued growth in container-shipping demand is likely.
“The U.S. and Canada continue to grow strongly, and volumes in 2017 outpaced expectations. This is good news for all ports and terminals. We expect 2018 to continue this strong volume growth.”
Oxford Economics agrees.
The U.K.-based economic research company raised its global GDP growth forecast to 3.2% in 2018 from 2.9% in 2017 based on what it sees as a continuing strong performance of the world economy and positive “omens for 2018.” Its December 4 global outlook research briefing pointed to four key reasons for that optimism: strong trade growth, low inflation, robust emerging markets and resilience to political uncertainty.
In a November brief, it also revised its world trade forecast up 0.5 percentage points to 4.2%.
Oxford Economics’ forecast for Canada predicts that exports will rise 2.9% in 2017 and 4% in 2018. It sees imports up 3.7% in 2017 and 2.4% in 2018, but Canada’s GDP growth slipping to 2.1% in 2018 from 3% in 2017.
The International Monetary Fund’s World Economic Outlook, meanwhile, projects global economic growth of 3.6% for 2017 and 3.7% in 2018.
In its 2017 nine-month financials, Hapag-Lloyd (ETR:HLAG), the world’s fifth-largest ocean container company, noted that global container-shipping volume from 2018 through to 2021 is projected to increase between 4.8% and 5.1%.
However, disruptive technology will continue to complicate the market for Vancouver’s Seaspan Corp. (NYSE:SSW), the world’s largest independent charter owner and manager of container ships, and other companies that service the container-shipping industry.
For example, McKinsey noted that advances in robotics and 3D printing using metals, ceramics and other materials could shrink supply chains by localizing manufacturing and eliminating labour cost gaps in other parts of the world.
Miniaturization, it added, could also reduce container-shipping demand.
The United Nations Conference on Trade and Development’s Review of Maritime Transport 2017, meanwhile, pointed to CETA and the economic partnership agreement concluded between Japan and the EU in July as positive developments for global trade and shipping. It added that the growth of cross-border e-commerce could also drive long-term container-shipping demand.
However, it noted that a sustained recovery will require a strong commitment to “coherent and co-ordinated multilateral policies.”
It also red-flagged the growing cybersecurity threats to world shipping supply chains.
While Buckby agreed that CETA will benefit port volumes, he doubted that it would significantly increase cargo through Vancouver and other Canadian ports.
“The dirty secret of many free-trade deals is that they don’t tend to have a substantial economic impact, especially if they just address tariffs, which tend to be low anyway, and don’t focus much on breaking down non-tariff barriers.”
Buckby added that port volumes would drop if NAFTA collapses.
“And even if it is successfully renegotiated, supply chains still face disruption, thanks to possible changes to rules of origin.”
A report released in late November by A.T. Kearney, a global management consulting firm, estimated that tariff increases in the wake of a failure to renew NAFTA could cut retail sales in Canada by $17 billion and chop up to $25 billion from retail sector gross margins.
However, the key challenge in 2018 for ports in B.C. and elsewhere in North America, according to analysts, will be similar to what it increasingly has been in 2017: how to handle larger containers ships. (See “Pinpointing B.C. Port Infrastructure Priorities,” Business in Vancouver issue 1463; November 14–20).
“This is relevant to both coasts,” Murnane said. “Liners are now deploying up-to-13,000-TEU container ships to the U.S. West Coast. It is beyond the capability of some smaller terminals to welcome and unload these vessels.”
The newly widened Panama Canal has also opened the way for larger transpacific ships to reach East Coast ports directly. Infrastructure and operations in those ports consequently face similar pressures.
Murnane pointed out that port productivity suffers because a mega-container ship can take up to five days to unload. “Some ports are rising to the challenge and investing, but smaller ports and constrained ports risk losing some mainline services.”
According to Walter Kemmsies, managing director, economist and chief strategist of Jones Lang LaSalle’s (NYSE:JLL) U.S. ports, airports and global infrastructure group, container cargo traffic to North America’s West Coast will continue to grow in 2018 but so too will the migration of more transpacific container traffic to Gulf and East Coast ports.
Among the reasons for that cargo diversion south and east, said Kemmsies: West Coast port congestion and importers’ investment in building distribution centres in the Gulf Coast area as ocean carriers launch direct services to China, Japan and other north Asian countries.
Kemmsies added that economic nationalism and geopolitical risks to global shipping and trade will remain high in 2018.