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Macro Macchiato 15/04/19: Where is Shipping Demand Going to Come From?

April 15, 2019

 

Ten most populous countries in 2018 (Source: World Economic Forum)

 

There are now about 7.5 Billion people alive and almost six in ten of them live in the ten most populous countries, according to this data from the World Economic Forum.  Over a third live in just China and India combined. Nigeria, which is seventh on the list, is home to Lagos, the world’s fastest growing megacity. Bangladesh is a noteworthy entry since it has one of the densest populations, with 1,140 people per square kilometer of land. Still plenty of room to urbanise though - London has about 1,500 people per km2, Shanghai about 3,850 and New York City about 11,000.

 

The good news for western liberals is that most of these countries practice democracy of one sort or another. But I want to think about shipping demand. Logically, these countries will provide the majority of trade demand growth in the coming decades (assuming that current populist and isolationist policies are short-lived phenomena). I looked up the import and export data for each of them in the IMF’s world economic database and the Observatory of Economic Complexity.

 

No peeking before answering – which of these countries enjoyed the fastest average growth in exports in the five years to 2018?

 

Answer: Bangladesh with a 6.6% growth rate.

 

Bangladesh’s exports are focused on the textile trade and were worth USD 39 Bn in 2017, putting it 54th out of 221 in global export rankings. Its imports, worth USD 44 Bn for the same year, were focused around textiles raw materials, plus electronics, steel, foodstuffs and refined petroleum products. With its growing population, Bangladesh has a large and cheap available workforce and one could feasibly expect it to make a growing contribution to shipping demand.

 

In second place in the export growth top ten was Brazil, with a five year average of 5.7% growth to USD 220 Bn in 2018, putting it in 22nd place globally, while its imports of USD 140 Bn bespeak a helpful trade surplus. Brazil’s top exports are soybeans - about 12% of all exports by value last year – then iron ore (9%), crude oil (8%) and sugar (5%). If President Bolsonaro’s reforms are effective, one might reasonably expect Brazil to grow its exports significantly over time.

 

Mexico, in third place with 5% average exports growth over five years, exported USD 418 Bn of goods in 2018, compared to USD 356 Bn of imports. With its main export partner across its northern border, Mexico is not a significant contributor to ocean going shipping demand, though some of its exports of vehicles and vehicle parts, which contributed a quarter of total exports, do go in containerships. US presidential threats towards Mexico don’t instill confidence in growth in this vital trade relationship. Mexico’s oil exports, 5% of the total by value, contribute less to global oil shipments than they might. President Andrés Manuel López Obrador recently said he would support Pemex to expand its production back upwards from 1.7 Mn bpd towards its 2004 historical peak of about 3.3 Mn bpd. However, he also envisages Mexico being self-sufficient in energy so his mind may not be on exports.

 

In shipping we know lots already about Russia (3.8% average five year export growth rate) China (3.6%) and India (3.5%). The other top ten populous countries had average export growth rates of below 3% a year.

 

What about the future? You might find the IMF’s forecasts of export growth in the coming five years to 2023 to be of interest. Bangladesh comes top again with 8.8% expected average growth in exports, followed by Pakistan (8.3%), India (8.0%), Indonesia (7.4%) and Mexico (4.8%). Pakistan’s USD 24 Bn of exports (data from 2017) are - like those of Bangladesh - focused on textiles while a third of its USD 55.6 Bn of imports are combined petroleum products, crude oil, palm oil and cars. Leaving aside India and Mexico, the other country of interest is Indonesia, currently the world’s 25th largest exporter. Exports of USD 188 Bn in 2017 were led by coal (10%), palm oil (10%), LPG (5%), rubber (5%) and crude oil (5%). Indonesia’s imports of USD 153 Bn in 2017 were led by refined petroleum (9%), crude oil (5%) and telephones (3%). If global coal consumption is peaking and global palm oil consumption is becoming politically unfashionable in the west, then Indonesia is going to have to find other things to export.

 

The Take Away

 

 

Total imports and exports in our top ten list were worth USD 3.4 Tn in 2017 and, basis IMF forecasts, could grow by 15% to USD 3.9 Tn in 2023. If these countries are to provide the core of shipping demand in the coming years, we will be watching for political stability, improving standards of governance, investment in infrastructure and technological advances to improve productivity. All of these can stimulate shipping demand, if the political will is there to support trade. But, as is the case with climate change policy, populist notions of self-sufficiency, and the global fashion for rejecting palm oil, governments and consumer have plenty of scope to alter the trade landscape.

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