Global trade slowdown seen to dampen shipping volumes

A slowdown in global trade and the weak demand for Philippine exports will combine to dampen shipping volumes to and from the Philippines.

This could be aggravated by problems in the international container-line industry triggered by the collapse of South Korean giant Hanjin Shipping Co. Ltd.

The Asian Development Bank  said in its Asian Development Outlook (ADO) Update that among the threats to sustained economic growth for the Philippines this year were weaker-than-expected demand from major markets for Philippine exports.

In the ADO Update, the ADB raised its growth forecast for gross domestic product (GDP) this year to 6.4 percent from its March projection of 6 percent. But for 2017, growth was seen to dip slightly to 6.2 percent, although still above the previous forecast of 6.1 percent.

The World Trade Organization (WTO)  reduced its global trade forecast, warning that antiglobalization rhetoric and Brexit were pushing trade growth to its slowest pace since Britain’s financial crisis. Brexit refers to the decision of the United Kingdom to leave the European Union.

The WTO said global trade was now estimated to expand by just 1.7 percent this year, compared to its April projection of 2.8 percent. The new figure was a far cry from year-ago growth projection of 3.9 percent.

The WTO said growth in trade had fallen to its slowest pace in about seven years when the global financial crisis hit.

It warned that “creeping protectionism,” coupled with slacking trade liberalization and the growing role of the digital economy and e-commerce might help explain the recent declining ratio of trade growth to GDP growth.

Think tank Economic Intelligence Unit (EIU), for its part, said the fall of Hanjin Shipping, the world’s seventh biggest container line, was an evident sign that the industry had hit a crisis point and a massive transition would be needed to turn the situation around.

The Hanjin Shipping debacle for now has little effect on the country’s trade since local exporters said they did not extensively use Hanjin vessels. But a study by SeaIntel cited by the EIU report showed an instant capacity reduction of 6 to 8 percent on trans-Pacific trade and a 5- to 6-percent reduction on the Asia-Europe trade as a result of the debacle.

“Hanjin also has major stakes in the ports of Busan and Osaka, which will most likely see high-capacity disruptions and impaired profitability as these ports will lose ship calls from Hanjin,” the EIU report stated.

It added that ports had also denied access to Hanjin vessels amid fears that the company would not be able to pay the fees to dock and store its containers, leaving most of Hanjin’s ships stranded at sea.

The company’s financial woes could be traced back to the financial crisis in 2008, which severely hampered global growth and trade and had a knock-on effect on the shipping industry, which lost an estimated $15 billion, the report said.

“The crisis surrounding Hanjin highlights the severity of the container shipping industry’s slump, which is experiencing its deepest and longest downturn in over six decades. This year, major container shipping lines have seen operating profits plunge, with earnings being exceptionally volatile,” the report noted.

A study by credit watchdog Moody’s Investors Service also indicated a consistent fall in profits and poor economic climate would drive a negative outlook for the shipping industry over the next 12 to 18 months.

“The industry is further imperiled by record low freight rates. The Shanghai Containerized Freight Index—a measure that reflects the movement of freight rates across the export market—dropped to a record-low since it was first introduced in 1998,” it added.

“The industry must undergo significant changes to address its underlying problems, otherwise the scale of Hanjin’s bankruptcy may be the first of many more to come in the industry,” the report said.