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Home » ‘Gloomy Prospects’, ‘Losing Steam’ – UNCTAD Summarises Shipping’s Outlook

‘Gloomy Prospects’, ‘Losing Steam’ – UNCTAD Summarises Shipping’s Outlook

by Joshua
December 3, 2022
in Featured, News

Gloomy prospects with increasing risks’ – a headline in UNCTAD’s latest Review of Maritime Transport (RMT) casts the die on shipping’s sombre outlook.

UNCTAD

Any recovery in maritime transportation and logistics is now “at risk” from the war in Ukraine, the continued grip of the pandemic, lingering supply-chain constraints, China’s cooling economy and zero-Covid policy, inflationary pressures and the cost-of-living squeeze, said the 2022 report. Adding to the long list of risks is industrial action in ports and hinterland transport, where there is potential for “widespread unrest”.

These risks mean that maritime trade is “likely to lose steam”, warned the report. UNCTAD estimates that maritime trade growth will fall from 3.2% in 2021 to 1.4% in 2022. Then, trade is expected to grow 2.1% from 2023–2027, notably below the historical average of 3.3%.

“Maritime trade is expected to be slowed by macroeconomic headwinds, and inflationary pressures that constrain consumer spending, and by pandemic-induced lockdowns and developments in China’s economy,” said the report. On the upside, there could be some normalising of demand as consumer spending switches back more to services.

Tonne-miles are forecast to increase as a result of the war in Ukraine as Russia looks for alternative markets for its sanctioned goods, while European importers consider alternative sources of supply.

Scenario outlook

UNCTAD puts forward four possible scenarios, each taking the global economic outlook and the Covid-19 pandemic into account.

Scenario 1 – ‘Recovery sustained’ – sees disruption contained, with the war in Ukraine ending in the near future and no military escalation in other regions. In this scenario, GDP growth reverts to its pre-crisis trend, inflation remains stable, and Covid-19 is endemic and no new lethal variants emerge. This results in falling freight rates, although they remain higher than pre-pandemic levels until new capacity arrives in 2023–2024. Overall, maritime trade grows at the historical average under this scenario.

Scenario 2 – ‘Recovery interrupted: The war in Ukraine intensifies, but the pandemic and logistics crunch are contained’ – sees disruption continue with a protracted war in Ukraine and intensifying of related economic restrictive measures which affect trade between the West and China. The Covid-19 pandemic is contained and is recognised as endemic, but inflation increases and monetary policy tightens as a cost-of-living crisis unfolds. GDP growth moderates and energy exports from Russia to Europe decline or are suspended. Overall, maritime trade stagnates or declines in this scenario.

Scenario 3 – ‘Recovery interrupted: The war in Ukraine is contained, but the pandemic and logistics crunch intensify’ sees disruption continue, as new infections and variants of Covid-19 emerge, and lockdowns are implemented sporadically. The war in Ukraine ends sooner than later and related economic restrictive measures do not escalate further – and may even be scaled back. However, supply chain and logistic problems intensify, and freight rates and inflationary pressures increase. Overall, maritime trade marginally declines, reflecting moderated demand due to higher shipping and living costs.

Finally, under Scenario 4: ‘Recovery derailed’, disruption is “exacerbated”. Covid-19 continues with more lockdowns and there is a protracted war in Ukraine. This leads to intensifying related restrictive economic measures, which affect trade between the West and China. There is overcapacity in shipping and logistics and freight rates fall with lower demand. This results in world fragmentation and decelerating globalisation and maritime trade declines. Under this scenario there is “greater uncertainty about the timing and path to recovery”, said UNCTAD.

“We need to learn from the current supply chain crisis and prepare better for future challenges and transitions. This includes enhancing intermodal infrastructure, fleet renewal and improving port performance and trade facilitation,” said UNCTAD secretary-general Rebeca Grynspan.

Sector outlook

Examining the different sectors, the RMT sees “divergent freight rate pathways with high volatility and uncertainty looming”. While container freight rates remained high and volatile at the start of 2022, they started to drop in the second quarter of the year. Then, over four weeks between August and September there was a double-digit fall and by the third week of September, the Shanghai Container Freight Index had dropped by nearly 60%. However, UNCTAD noted that those rates were more than double the pre-pandemic averages.

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“Container freight rates can be expected to decline further as merchandise trade normalises and newly built vessels enter the market,” added the report.

For dry bulk, freight rates had softened by September 2022 rates as congestion eased and China’s economy slowed. Here, future demand will be affected by “a persistent pandemic and its impact on supply chains, a global economic slowdown and volatile commodity prices”.

For tankers, UNCTAD expects freight rates to increase with a potential rise in oil demand and trade and a re-sourcing of global oil flows resulting from the war in Ukraine.

Overall, “future rates will be driven by a number of factors, working singly or in combination, suggesting greater volatility and an overall downward trend in some segments”, said UNCTAD. These include increased uncertainty regarding demand, the extent of port congestion, potential new supply chain disruptions, and the effects of the war in Ukraine, including increased fuel costs.

Low fleet growth, meanwhile, could compound trade recovery. UNCTAD calculates that in 2021, the global commercial fleet grew by under 3% – the second lowest rate since 2005. The fleet has been ageing since 2011: by number of ships, the current average age is 21.9 years, and by carrying capacity 11.5 years. Bulk carriers are the youngest vessels with an average age of 11.1 years, followed by container ships at 13.7 years, and tankers at 19.7 years.

“Average ship age has been increasing partly because, in the wet and dry bulk sector especially, shipowners have been uncertain about future technological developments and the most cost-efficient fuels, as well as about changing regulations and carbon prices,” noted the report.

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