Idle global ships unprecedented as trade slows

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PH a bright spot in an otherwise bleak global trade picture

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THE PHILIPPINES is an apparent bright spot in an otherwise grim picture for global trade. The country’s container shipping volume has been increasing while a general slowdown of trade elsewhere has led to an unprecedented number of ships lying idle this quarter.

The idling of ships is part of a trend of declining capacity throughout the entire year, but is unprecedented in its scale and timing. Last week, the UK-based maritime research and consulting firm Drewry reported that more than 300 containerships with a combined capacity in excess of 800,000 TEUs (20-foot container equivalent units) were idle, a clear indication of lower trade volumes.

The idle capacity, Drewry explained, were unprecedented both in terms of size and timing. The third quarter is considered peak season for Asian exports. So after moving most of the peak season freight, shipping companies do typically take ships out of service at the end of the quarter. However, for them to do so at the beginning of the peak season, Drewry noted, is a sign of deep weakness in the global shipping market. The implication is that exports, particularly from Asia, have declined significantly from previous year, the consulting group concluded.

Major shipping routes suspended
In addition to individual ships being parked, a couple key shipping routes have been suspended just as the peak season should be getting underway.

The G6 Alliance, which comprises Hapag-Lloyd, OOCL, APL, Mitsui OSK Lines, NYK, and Hyundai Merchant Marine, suspended its Central China 1 (CC1) route for at least six weeks in the second week of June. The route forms a long trans-Pacific loop, connecting Qingdao and Shanghai in China; Gwangyang and Busan in South Korea; and the US west coast ports of Los Angeles and Oakland.

According to Drewry, the suspension of the route idled five ships with an average capacity of 6,600 TEUs each, with a sixth being reassigned elsewhere.

Another major route that was suspended was the ‘Manhattan Bridge’ route of the Ocean 3 alliance—CMA CGM, China Shipping Container Lines (CSCL), and United Arab Shipping Company (UASC)—which calls at the Shanghai, Xiamen, Yantian and Hong Kong on the China coast as well as New York; Norfolk, Virginia; and Savannah, Georgia. Suspending this service idled nine ships with a combined capacity of 36,000 TEUs, Drewry said.

“Drewry market sources indicate that the peak season in the trans-Pacific is rather weak,” the firm said. “A combination of low freight rates and muted demand must have played a part in the unusual decision of carriers to lay up ships in July. We also speculate that carriers are trying not only to park unused capacity but also to bring spot rates back up by increasing load factors on remaining active ships.”

PH bucking the trend
According to the operator of one of Manila’s two major container terminals, however, the sharp drop in available shipping capacity and underlying slowdown in global trade has had no adverse impact on the Philippines at all.

“We have had several months of steady growth in volume,” Doan Bustamante, corporate communications manager for Asian Terminals Inc. (ATI) said.

ATI is the operator of Manila’s South Harbor container terminal.

In terms of container volume, “We’ve been averaging about 85,000 TEUs per month, but we’re seeing months of 92,000 to 95,000 or more,” Bustamante explained. “And it’s been steadily increasing.”

Although the observation only applied to ATI’s operations, something that Bustamante was careful to point out, the robust shipping volume is a positive sign for the Philippines, as it indicates the country’s seaborne trade remains healthy among a general global slowdown in container shipping volume.

Information from Manila’s other container terminal, the Manila International Container Terminal operated by International Container Terminal Services Inc. (ICTSI) agreed with ATI’s observation. Although second-quarter details were not yet available, ICTSI reported it had seen about a 4 percent increase in contain throughput across all its operations in the first quarter, and that from the first quarter into the second quarter, it had seen “improvement in trade activities in Jakarta and at most Philippine ports.”

Global trade ‘not growing at all’
The activity in the Philippines, and perhaps other places in the region, is in contrast to a report published by the London-based Center for Economic Policy Research (CEPR) found that global export volume reached a plateau in January 2015, and have not moved since. “Global trade is not slowing down,” the report notes. “But it is not growing at all.”

According to the CEPR, global trade is declining in just about every aspect. Both industrialized and developing economies are seeing lower trade volumes, the report said. It also points out that the world has not experienced such an extended period of trade stagnation since the fall of the Berlin Wall—15 months and counting.

And there are worrying signs that instead of improving sometime in the near future, trade might deteriorate from being stagnant to shrinking further. The CEPR report noted with some alarm that, “The pain is spreading—in our last report we showed that 28 product groups each accounted for 0.5 percent or more of the fall in the value of world trade. That number has now risen to 38.”

‘Get trade moving again’
According to the head of the World Trade Organization (WTO), the cause of weak global trade is obvious: Member nations need to stop putting up barriers and ‘get trade moving again’ to solve slow global economic growth, WTO Director-General Roberto Azevêdo said in a mid-year report.

The WTO’s Trade Monitoring Report released late last month stressed, “The best safeguard we have against protectionism is a strong multilateral trading system.”

The report noted that in the period from October 2015 to May 2016, WTO member countries implemented an average of 22 new trade-restrictive measures per month, or a total of 154.

In the previous review period, covering approximately the half-year to October 2015, an average of 15 measures per month were implement. The WTO report noted that the latest figure represented the highest monthly average of new trade-restrictive measures since 2011.

On the other hand, ‘trade-facilitating’ measures did increase slightly from the previous period, with 19 new measures per month being introduced.

Azevêdo in a statement included in the report said, “The report shows a worrying rise in the rate of new trade-restrictive measures put in place each month—hitting the highest monthly average since 2011.

“We hope that this will not be an indication of things to come, and clearly action is needed. Out of the more than 2,800 trade-restrictive measures recorded by this exercise since October 2008, only 25 percent have been removed.

“In the current environment, a rise in trade restrictions is the last thing the global economy needs. This increase could have a further chilling effect on trade flows, with knock-on effects for economic growth and job creation.”

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