Will Seas’ Economy Peak Again?

The year 2017, when the majority of the world nations experienced political stability, witnessed significant events in the field of trade. A growth in the international maritime trade could be interpreted as a signal that the market is peaking again. The world was faced with some sort of instability in 2016 in the light of Brexit, triple elections in Europe and US presidential elections, which resulted in cautious behaviors and decision. Admittedly, shipping industry was not an exception to this. Nonetheless, a brisk glance at the global economic trends in 2017 highlights that a new equilibrium is coming to existence under the influence of latent demand detection technologies, a reduction in supply at the international fleet level, and consolidation of some shipping lines. In fact, these matters have retrieved the opportunity of becoming profitable again for an industry which is practically in its mature years age-wise.

News ID: 77704

Date: 16 December 2017 - 11:31

While from 2005 to 2010, the market witnessed a 5.5-percent growth; this figure, however, underwent a nose-dive fall to approximately 3.1 % between 2010 and 2015. Between 2015 and 2018, the tide began to come up, and the demand has been proportionally rising compared to 2010-2015, but this cannot be deemed a rise compared to 2005- 2010. When being asked about the reasons of an increase in demands between 2015 to 2017, experts assert that shipping lines are moving forward in their supply trends at a slow pace. The 5-year recession in the field has practically disrupted the fleet supply, causing the lines to merge, and reduce their orders for purchasing vessels. In addition, the 2008 economic recession reached a manageable point. European countries such as Greece, Portugal, Spain and Iceland, who had almost reached the boundaries of bankruptcy managed to rebuild their economies. Even the European Union injected an extra 5 billion Euros to the market for managing its negative inflation, keeping this rate between 0 to 2 percent. On the other hand, the impacts of the US sanctions gradually faded away. Indeed, the condition of consumption was mended in comparison with 2008 to 2010, when the crisis broke out. However, the mending trend has been delicate. There was a recession between 2005 and 2010; the ship owners had ordered a large number of ships, and the prices hence had become increasingly competitive. A rise in the number of vessels as well as new technologies had given rise to an increase in the investment. Given that the new vessels were not able to venture to just any port, they needed to make turns and dock at alternative ports. Therefore, various factors shadowed the international maritime transportation and caused a drop in the indices. Yet, now, this economy is gradually peaking. Nevertheless, it is difficult to speculate the conditions after 2018 because events that had created the economic crisis could have been solved by financial regulation. The ex-president of the US, Barrack Obama, had commenced taking measures for such regulations, but Donald Trump, from his early days in the oval office, terminated the financial regulations supervising financial derivatives. This termination makes it difficult to make long-term prognostication, but what could be foreseen for certain is that the market will have a slow rise up to the end of 2018. It is noteworthy that the type of possession as well as the registration of the ships are two critical issues. Japan and Greece hold the first and second positions in this regard, and China, Germany, the United States and South Korea stand in the next ranks. The access of these countries to wellequipped fleet and container ships could be translated as the actual demand and supply in their own economic capacities. Each of these countries are key players in the global economic games, production, and export and import of raw materials. The year 2017 is the year of economic stability for Japan, China, Germany, the United States and South Korea, who have all moved on from the economic problems of the previous years.

Collaborations of Transportation Companies in 2017

The year 2017 witnessed an increase in technological stimuli. These stimuli have a massive impact on consumerism seeing that they discover the blind spots of demands in markets. Here, technology does not mean building equipment; it rather represents the true understanding of consumer behavior relying on information technology. In other words, more accurate and meticulous technologies analyze consumers’ behavior, and detect the untouched demands or form a coalition with their allies. A senior expert in transportation, Majid Tehrani, counts the type of deals, types of agreement and diversifications in trade models as the affective factors in this regard, and asserted that these coalitions have been formed by companies who are concerned about their final price and geographical classifications. They also use more advanced technologies. As a case in point, DHL or Kuehne & Nagel, as logistic activists, enjoy extremely complicated technologies, and have managed to conduct the necessary restorations. According to a member of the board at Shipping and Subsidiary Services Association, Mehrshad Moeinm, the global demands in the shipping market in the past years drove many shipping lines to place orders to purchase ship to be able to cater to the demands they predicted would emerge; nevertheless, the worldwide recession did not allow the transportation of goods reach the predicted levels. Upon this, the companies that had miscalculated their predictions ran into problems. Meanwhile, the more powerful companies merged with each other in order to reduce their losses to a minimum. Speculating that shipping activities will be positive and promising in 2018 and 2019, Moein continued that political issues, production, social issues and many other signs are highlighting that the world has reached a point where countries prefer to have further collaborations with each other. These interactions are more vividly observed in the economic arenas. Our age is the age of interactions and dialog among countries; the age of winwin economic affairs. Another transportation expert, Mahmoud Rostam Afshar, is of the opinion that world shipping lines are placing orders for building larger ships, and small lines are merging. Referring to the excellent moves of IRISL in international scale, Rostam Afshar added that global economy is growing out of the recession, yet the growth rate will bit be impressive. Hence, he speculated that in 2018, shipping lines will witness a maximum positive trend of 5 %.

An Increase in Container Trade

Prior to 2017, the capacity of container trade was debatable. However, this figure increased dramatically afterwards. From 1980 to 2015, a large capacity entered the container shipping market and the supply expanded. This trend reached stability in 2016, which could bear benefits for the restoration of maritime transportation industry, increasing profitability, and promoting growth rate. In 2017, the available fleet and the ordered fleet with different capacities between 13 to 18 thousand TEU and between 18 and 20 thousand containers enjoy a specific pattern. In fact, orders for the fleet of smaller than 10,000 tons have substantially declined. In the container transportation sector, large lines have staged their interest lie in having massive fleet. This strategy which is called the Blue Ocean was pioneered by Maersk Shipping line. In fact, the competitive elements of the industry had all been similar, and the dire need to a factor that triggers new rivalry was strongly felt. Even though the vision of the decision makers at the time was to increase the capacity of the vessels, other parties decided that they could benefit from this policy as well. In the light of the easy access two low-interest financial resources in Europe, all ship owners found a chance to participate in this game, and the market was hence saturated.

Slow Growth of Forwarders and Operators

In the supply chain, each and every ring has to be optimized, and the optimization of one ring without the proportional development and modification of other rings in ineffective. Hence, the role of the port in the maritime transportation should not be neglected. That is why many countries direct their monetary resources to ports or they themselves participate in the ports, and turn them into mega hub port so that vessels can dock at them. This way, in case there is a sudden fall, they can be transferred to the neighboring ports and the destiny of the ports change. As far as the number of ship operators and TEU capacity is concerned, APM Company is the world’s leading company; and MSC, CMA, COSCO, Hapag-Lloyd, Evergreenqxz, and OOCL stand in the next positions, respectively. All these operators have reached stability through forming a coalition, in such way that the entire world can be classified into 3 coalitions in terms of vessel operators. Ship and port operators can indeed optimize their relationship through a mediator. Unless a mediator is in place, the ship operator passes on his problem to the port operator, and the bottleneck will be transferred from one point to another. In the goods forwarders sector, the trend is increasing at a logical and steady trend. The world’s main players such as Kuehne & Nagel, DHL, SINOTRANS and DB SCHENKER have managed themselves capacitywise in 2016 and 2017, and have reached stability. In 2017, ship operators managed to do their business through leasing relationships. This highlights that the executives of ship operators staged stronger sensitivity to their balance sheets and liquidity. In fact, they endeavored to increase the return of liquidity since this process is a source of income for them and as well, it turns the industry to its natural state. APM, MSC, and CMA hold 50 % of the market share. The mere fact that these primary players leave the competitions and reach equilibrium has profound effects. It is noteworthy that strong bankers accompany these firms and have acted as stabilizer factors to the market.

Ports Events

The years of 2016 and 2017 have witnessed significant events in the main ports of world. The five main ports of the world, Shanghai port with the container throughout of 37.1 Million TEU, Singapore 30 Million TEU, Shenzhen 24 Million TEU, Ningbo 22 Million TEU and Hong Kong port with the volume throughout of 19 Million TEU, have experienced some changes in their movement. Hong Kong and Singapore ports which were among the regional Mega-ports, had experienced a downward trend in comparison with the last year. On the other hand other, ports such as Shanghai, Ningbo and Shenzhen had experienced an upward trend. When a company is responsible for both production and logistic process, it naturally tries to stage a stable behavior. This is why that Hong Kong and Singapore have seen a decline in their ranking, three top ports (Shanghai, Shenzhen, Ningbo) have recorded 83 million TEU container throughout. The top global operators have managed to maintain their position, so that, PSA which accounts 8 percent share of market and HUTCHINSON with 6.8 percent, APM with 5.5 percent and PD WORLD with 5.3 percent have managed to play a colorful role the market with a more stable trend. A case in point, during 2010 to 2012 years, the reduction of revenue of shipping companies had resulted in a change in their behavior, however, for the time being, these behavior have been improved. When the revenue of Maersk, the world’s largest container shipping company, declined from 49 Billion Dollar to 35 Billion Dollar, this company had to put pressure on the market , as a result, the market had underwent some changes. Nevertheless, currently, these companies have come out of the crisis, the rates have been improved and a partial stability is being experienced in the market.

The Impacts of Energy on Transportation

When it comes to the general improvement of global trade flow, it means an increase in energy consumption and need to the raw material simultaneously. Generally, underdeveloped countries mainly export general cargo and import container. Therefore, when the global trade is experiencing an improvement trend, underdeveloped countries sell more raw materials, as a result, these countries export more general cargo and import containers at the same time. A senior expert in transportation, Majid Tehrani, proposed: an increase in general cargo or container movement depends on the development of countries. African, Asian and Middle East countries export mainly general cargo. Moreover, their imports rate has been higher than their exports rate. Otherwise, these countries will face balance of trade deficit and other main problems such as inflation. With regards to energy condition, he continued that given that main energy trade moves toward sustainable environment, it is predicted that in the next one or two decades, oil consumption will experience a partial stability or a decline, because there is tendency toward sustainable and clean energy. Tehrani remarks that Shell Oil Company, which is one of America’s largest oil and natural gas producers, has been very effective company. Following four decades of activities, it could turn America from oil importer into oil exporter. This issue has a massive impact on energy trade. Referring to the transferring energy through pipeline, he explains that in terms of logistically, the energy sector is subjected to security policy, on the other hand, the attempts are being made that wherever that there is a sustainable supplydemand, the energy is transferred by pipeline. Therefore, pipeline and oil and gas pipeline are very significant matters when it comes to the management of ships. The world of energy is getting more influenced by world policy than the trade cycle. Moreover, instability will exert a great influence on the world of energy. It is possible that when shocks either arise from the demand side or the supply side, a very sustainable player in market like Aramco, Saudi Arabian Oil Company may leave the shadow of market due to political instabilities. Without such political events, the energy market will not experience ups and downs. Countries will supply the needs of energy through a wide variety of methods.