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Outlook for 2013 – Global Economy and Trade

The global recovery continues to suffer setbacks and uncertainty weighs heavily on the outlook for 2013. Nevertheless a gradual strengthening of economic activity from the low pace of 2012 is expected. Key risks to the recovery are the viability of the euro zone, negative developments on U.S. fiscal policy, and whether emerging market economies can maintain their pace of expansion while shifting further from external to domestic sources of growth. GDP in the advanced economies is projected to expand at a slow pace of about 1.3% in 2012 and 1.5% in 2013, assuming that the above identified risks do not materialize substantially.     In the euro area, GDP is projected to decline by 0.4% in 2012. With and euro-area-wide policies supporting a further improvement in financial conditions, marginally positive growth of 0.2% is expected in 2013. In the United States, weak household finances and continued fiscal consolidation stand in the way of stronger growth, and GDP is expected to grow by 2.1% in 2013. In Japan, the pace of growth will diminish noticeably as post-earthquake reconstruction winds down. GDP is forecast to grow by about 1.2% in 2013. The advanced Asian economies will continue to register stronger growth rates at 3.5-4.0%, with growth driven by domestic investment and consumption.

Fundamentals remain strong in many emerging economies where employment growth and domestic consumption should continue to propel demand and support investment. GDP growth is expected to close at 5.3% in 2012 and rise to 5.6% in 2013.      In developing Asia, GDP is forecasted to accelerate to a 7.2% in 2013, the main driver for which is China, whereas the outlook for India remains uncertain. In Latin America, GDP growth is projected to be about 3.2% for 2012, accelerating to 3.9% in 2013 on the back of fiscal measures in Brazil aimed at boosting demand and easing monetary policy In Central and Eastern Europe (CEE) improving financial conditions are expected to raise growth from 2.0% in 2012 to 2.6% in 2013. Growth is expected to be considerably higher in Sub-Saharan Africa at 5.7% in 2013, due to infrastructure development and investment interest from advanced economies. In the Middle East and North Africa (MENA) region growth will be held back by continued uncertainty associated with political and economic transitions. GDP growth is expected to slow to 3.6% in 2013 from 5.3% in 2012.

Overall, global GDP growth will increase from 3.3% in 2012 to 3.6% in 2013, and corresponding trade growth (total of goods and services) is expected to rise from 3.2% in 2012 to 4.5% in 2013.
Global Output (GDP) and Trade Growth 2006 - 2013

15.00%
9.2% 7.8% 5.3% 5.4% 2.8% 3.0% 5.1%

12.6%

10.00%

5.8% 3.8% 3.3% 3.2% 3.6% 4.5%

5.00%

0.00%
-0.6%

-5.00%

-10.00%
-10.4%

-15.00% GDP Trade

2006 5.30% 9.20%

2007 5.40% 7.80%

2008 2.80% 3.00%

2009 -0.60% -10.40%

2010 5.10% 12.60%

2011 3.80% 5.80%

2012 3.30% 3.20%

2013 3.60% 4.50%

Source: IMF World Economic Outlook (October 2012)

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As regards container ship sizes. with owners looking at specific economies of scale. it will not be a discernible supply-side modifier unless it steps up significantly. Before we reach the relatively calmer scenario in 2014 and beyond.000–10. But overall the orderbook has been quiet and is expected to remain so for the next 12 months at least.2% 2015 1.312 225 16.5% in the 2nd quarter of 2012 as Chinese exports were badly affected. In the longer term (2014-2016). tonnage will have to forcibly cascaded to secondary trades and the current trend towards greater idling of ships will have to continue in order to keep supply in check.1% 2013 1.3% Scheduled Delivery * Less : Slippage to following years Less : Cancellations/conversions Delivery total (end year) Scrapping Total fleet as at end year Fleet growth * Including slippage from previous years Source: Drewry Q3 2012 Container Forecaster Container Market Supply/Demand Forecast (2) .744 250 50 1.000+TEU or above and Hapag-Lloyd.5% 5.3% 2014 1. Container Growth Forecast (Year on Year with green headers and per Quarter for 2013 with blue headers) Period World Container Traffic Growth 2010 14.Container Trade . at a multiple of 1.1% 2013 Q1 3.4% 2016 709 150 0 559 150 19. the industry must still weather the next 16 months. In the future lower GDP-to-trade growth multiples are likely to become the norm.0% Source: Drewry Q3 2012Container Forecaster Fleet Development On the orderbook front.577 7. Adjusted Containership Orderbook In ‘000 TEUS 2012 1.2% 2013 Q3 5.000 TEU range with an emphasis on design to account for shallow draughts and the use of ecofriendly fuels.092 150 0 942 125 19. Besides the midsize range.0% 2013 Q4 6. it is also likely that there will be significant investment in ‘feeder-size’ 2.5% 2013 Q2 5. Super slow steaming initiatives will continue. This means that 2013 will be a challenging year. and growth in Western Europe will be marginal to slightly negative.444 250 17. This will mean increased orders in the 8.Europe trade. This will be compensated by Asia and the rest of the emerging economies where growth rates of 5-7% are expected. Growth remained marginally positive in South America and Africa and only the Middle East gave cause for optimism.383 7. and thereby the long-term supply outlook is positive.2% 2015 6. as compared to the traditional Asia/Europe and Asia/North America routes.498 5. Scrapping has continued fairly steadily throughout 2012 and even though it is on an upward trend.150 150 0 1. In 2013.724 2.071 150 18. Growth in North America is expected to be subdued at about 3%.4 to GDP growth.4% 2016 6. Cosco and China Shipping will continue to receive a number of units of this size throughout 2013. The orderbook will thereby no longer be dominated by 13. volume growth is expected to pick up to 6-7% levels as underlying economic fundamentals gradually improve. there have been some isolated orders in 2012 and there is continued interest in very big container ships.000 150 20. In the Asia.574 4.000+TEU vessels.8% 2012 4. with the danger of reactivating a dead market should prices drop too far. container traffic is expected to grow by approximately 5%.487 175 0 1. High GDP-to-container trade growth multiples recorded globally during the China boom years owe a lot to the outsourcing effect which was a one-off.271 200 0 1. The important Far East market grew by only 4.315 4.5% 2011 7. Middle East and Africa trades. nine of the top 20 carriers are already deploying ships of 10.Demand The slowdown in world trade became a stronger reality in the second and third quarters of 2012 as economic problems across Europe made themselves felt. However new-building prices are clearly still falling.1% 2017 1.000 TEU tonnage.0% 2013 Full Yr 2014 6. in the longer term there will be higher growth in Latin America.

0 80. and carriers have seen that this commercial common sense was well rewarded. and unfortunately this makes the direction of rates very hard to predict. Subsequent attempts in 2012 to increase rates have not been as successful. Global Containership Supply/Demand Index 110. suggesting that demand/supply balance will not be as much against the carriers as the numbers indicate. Idle Containership Capacity for vessels over 3000TEU in capacity 2009-2012 Source: Alphaliner Last but not least.9 100. Alphaliner. Although higher rates are in the interest of all carriers. indirectly urging other carriers to do the same.3 95. on the cost side the relatively lower bunker price forecast for 2013 (compared to early 2012) due to subdued global economic growth and demand for oil will help carriers immensely due to their historic inability to be fully compensated for bunker price increases.0 105. using 1980 as a base year. especially when they are not in desperate financial straits.0 103. and taking a number of demand and supply side factors into account.000+TEU vessels due to be deployed. due to the large number of 10.3 104.0 85. the revised index figures for both 2012 and 2013 are estimated by Drewry to be over 100.8. After adjusting for lay ups.0 103.3 95.4 105.8 99. supply index. This increase was driven more by carriers’ determination than fundamental supply/demand factors.7 98.4 97. When the value crosses 100.Drewry Shipping Consultants have developed a methodology for assessing a demand vs.4 97.0 75. Drewry Q3 2012 Container Forecaster. IMF World Economic Outlook October 2012. and in recent years the increased willingness of operators to lay up excess capacity has altered the supply side of the equation. Moving forward it is clear that the success of rate increases will depend heavily on carriers’ sentiment.8 Source: Drewry Q3 2012 Container Forecaster Outlook on Industry Results The huge rise in spot market rates experienced during the second quarter of this year was very welcome relief to carriers.8 99. (3) . Sources: UASC analysis.8 96. what will definitely help the supply side of the equation is the increasing trend towards idling of vessels (as can be seen in the graph below). Besides the ‘determination’ factor.9 100. those that are willing to or have the capacity to withstand short term losses will attempt to increase their utilization and market share by dropping rates.1 96.4 105.1 96.5 88.8 96.3 104. Market leader Maersk Line is seen to be publicly spearheading this effort in the media. This trend should help the industry’s prospects considerably. The index value for 2013 is forecasted at 95.0 95.8 88.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Index 104.0 100.7 104. The demand/supply index however does not take into account the effect of laid up and inactive ships. PR News.5 98. it signifies a supply/demand balance significantly in favor of the carriers. slightly lower than in 2012.0 90. which signals some reluctance on the part of carriers to risk losing market share. and brought to an end many consecutive quarters of declining profitability.