FILE : THE TRANSFORMATION OF SHIPPING ROUTES
Economic Poles are Shifting
For several years the centre of economic growth has been heading east, directly impacting trade routes and the volumes of cargo shipped. Players in marine transportation must adapt to this migration.
While the 2008 crisis is still affecting Western economies, Asian countries have barely missed a beat in their ongoing development. Inevitably, their production and expanding needs have caused an upheaval in the volumes of goods imported and exported worldwide. They are also altering routes and traffic on international shipping lanes.
According to the Review of Maritime Transport 2012, produced by the United Nations Conference on Trade and Development (UNCTAD), in 2012 a total of 60% of world seaborne trade by volume was loaded, and 57% unloaded, in developing-country ports. The authors of the Review called this “a remarkable shift away from earlier patterns when developing economies served mainly as loading areas of high volume goods (mainly of high volume raw materials and resources).”
Migration of economic poles
Global economic development has definitely passed a milestone: the UN study projects that by 2025, fast-growing developing economies will grow on average by 4.7% per year, with Brazil, China, India, Indonesia, South Korea and Russia expected to account for more than 50% of global growth. For their part, developed countries are forecast to grow 2.3%. Ultimately, the share of developing countries in global GDP will rise from 36.2% in 2010 to 44.5% in 2025.
In 2010, trade in developing countries already accounted for 42% of world trade, compared to only 30% five years earlier. The main point to keep in mind is that most of this growth came from the explosion of trade between the countries of the south, and not, as was traditionally the case, from trade between developed countries in the north and developing countries in the south.
The UNCTAD study notes that in 2015, China will be the top exporter and importer and that by 2050, 60% of exports will go from advanced Asia to the emerging Asia of Vietnam and Thailand.
UNCTAD’s findings are echoed by other observers of the world trade scene, such as the International Transport Forum (ITF) of the Organisation for Economic Co-operation and Development (OECD), which reported: “The movement of seaborne freight reflects the two-speed growth in the world economy, with developing countries faring better than developed economies. Nine out of the 10 busiest container ports are all located in East and Southeast Asia.”
In further consensus, the Global Marine Trends 2030 report, conducted by Lloyd’s Register Marine Consultancy, the multinational defence technology company QinetiQ and the University of Strathclyde, and made public in April, affirmed that the largest growth in container traffic will take place on routes between the Middle East and the Far East over the next two decades.
Robust growth in developing economies is expected to continue over several years, prompting the deployment of port infrastructures in these countries. For example, DP World, a terminal operator located in Dubai, United Arab Emirates, advised investors in March 2013 to invest more than $6 billion US to increase its operational capacity by 20 million TEU containers, then a further 10 million over the following two years.
Global value chains
Another phenomenon that has a direct impact on seaborne shipping is the spacial dislocation between where manufactured goods are designed, procured, assembled and consumed across the planet. The manufacture of an airplane at Boeing illustrates this phenomenon very well: it takes six million parts from more than 5,000 factories spread around the world to assemble a Boeing 747.
This globalization of supply chains is spurring marine transportation. In this context, a vessel is seen as inventory in transit, and this in itself entails costs. In turn, marine carriers must deal with the cost and reliability requirements of shippers who are keeping their inventories tight.
Marine carriers have counted on two key strategies in recent years to maximize returns on their global networks: 1. Alliances, so that by grouping together among each other they can extend the range of their services; and 2. Economies of scale, because huge ships can lower the average cost of transporting containers and mitigate rising fuel costs.
Gigantic size of ships
Vessel size continues to grow, with the largest to date being the Danish post-Panamax, Triple-E class, from Maersk. At 400 metres long and 59 metres wide, these behemoths, large enough to swallow three football fields, have a capacity of more than 18,000 TEUs. The first of this great family, the Maersk McKinney Moller, was launched in July 2013. The arrival of these giants of the sea is shifting sea routes by increasing the importance of hub ports located in the Caribbean, the Mediterranean and Northern Europe.
The ports’ response
Ports are at the heart of the logistics process. In the context of global supply chains, choosing the right port is part of the logic for calculating door-to-door service that includes inventory costs, transportation costs – whether by rail, truck or ship – warehousing, and more. To stand their ground, ports must become value-adding sites.
Source : Hofstra University
Each port is adapting to the new situation on its own merits, its geographical position, its client base and its assets. For example, the Port of Savannah, Georgia, managed to reinvent itself and stand out by opting to create a huge distribution zone. Ten years ago, this port was basically unknown. Today, it is the second largest container port on the East Coast. Its rapid rise is tied to a well-defined logistics strategy: create a logistics park for mass distribution close to its facilities. Import flows are balanced by a local export market, ensuring balanced traffic and full vessels.
Large retail clients such as Ikea, Walmart, Target and Home Depot have set up huge warehouses on land adjacent to the port, close to the largest container terminal in North America. The port receives imports intended for mass distribution markets. The containers leave full of poultry from Georgia.
Other ports around the world have applied the same strategy as the Port of Savannah; this is the case at the ports of Philadelphia, London, Antwerp, and Colon, Panama.
For the Port of Montreal’s response to the new business realities of the 21st-century, click on Port's Adaptation Strategy.