It looked like 2020 was going to be a catastrophic year for global trade flows. Actually, despite the heavy impact of Covid-19, the international trade system showed a remarkable degree of resilience. Trade flows shrank by 5% globally, a much better (or less worse) performance than it had been initially expected in view of the substantial paralysis of several global value chains during the first pandemic wave. Nonetheless, Foreign Direct Investments (FDIs) experienced a much more dramatic drop, falling by 40%. This unprecedented situation raised crucial questions for investors, resulting in a sudden stop of capital flows determined not by a lack of liquidity , but by the incredibly high level of uncertainty, which made both short- and long-term investment choices virtually impossible.
The ongoing global economic recovery, facilitated by a rapid – albeit uneven – GDP growth which will allow many countries to quickly resume to pre-Covid levels, is also bringing about a significant rebound in global trade flows. According to UNCTAD, the recovery will be faster than in the last two trade recessions (occurred in 2009 and 2015), with an expected 16% increase in international trade this year. However, while trade in goods is quickly bouncing back to 2019 levels, trade in services is reacting more slowly because of still limited cross-border movements of people, either for professional reasons or leisure.
Therefore, the situation is looking good overall. But there are some downside risks behind the corner: companies in high demand for rare earths, expensive maritime freight (with rates increased by over 500% along the route connecting Eastern Asia to Europe), and inflation rising at unprecedented rates are all economic elements that contribute to explaining the level of stress — and understanding the disruptions — experienced by global value chains. On top of that, one should also add the geopolitical tensions between China and the United States, with the Southern Pacific region seen as tomorrow’s “battlefield” and Europe standing in between the two super-powers: against such a complicated scenario, it is not difficult to understand why the paradigm of globalisation – as we used to know it – could be undermined.
The relative weight of maritime trade
The growth of maritime trade was already on a downward trend before the Covid-19 outbreak. In 2019, maritime trade flows expanded only by 0.5% (against +2.8% in 2018), and contracted by 4.1% in 2020. According to the 2020 Review of Maritime Transport released by UNCTAD, the pandemic contributed to exacerbating existing problems, such as the container shipping industry’s constrained supply capacity. Economies of scale generated by bigger and bigger vessels might represent an opportunity for companies and freight operators to reduce costs; however, often such benefits cannot be exploited by smaller freight companies or small developing States and islands, which in most cases lack the ports infrastructure needed to host today’s “gigantic vessels”. The current short-term logistical problems — which have been another reason contributing to the delay in delivery timings and to the shortage of key products (particularly technology intensive such as semiconductors) — are likely to produce structural shifts in the structure of key value chains, moving from today’s extreme globalization towards shorter, more regional supply chains.
Against such a complicated background, policy action is needed to strengthen maritime trade and increase its resilience to shocks which are both exogenous to the shipping sector (e.g., future pandemics) and endogenous (e.g., bottlenecks at the logistical level determined by the shortage of containers or workforce). First of all, technology and digitalisation are fundamental to improve ports’ efficiency and productivity in transports (for instance as regards smart ports and shipping). Secondly, energy sustainability can also be key in promoting efficiency in maritime trade while contributing to reaching climate neutrality targets. Finally, last – but definitely not least – nearshoring and reshoring projects should be complemented by plans aimed at multiplying and diversifying supply routes instead of reducing them.
After the Suez accident, why are chokepoints so important?
The accident of the Ever Given containership, which got stuck at the Southern entrance of the Suez Canal in March 2021, revealed how vulnerable economic globalization is, leaving the “just-in-time” delivery mechanism exposed to weaknesses that can potentially leave the entire system on its knees. Improving accessibility through the Suez Canal (which accounts for almost 12% of world trade and 30% of maritime trade) will be of essence to avoid similar episodes from repeating in the future. However, though the Suez route is vital to the economic ties between Europe and Asia through the Mediterranean, other chokepoints are crucial to connect other global routes for maritime shipping: Panama and the Straits of Hormuz and Malacca are by far the most important ones as they represent the main connecting dots of merchandise trade. And new ones, like the passage through the Arctic region, might gain importance in a not-too-distant future. The future of global shipping routes will depend on a number of factors, including geopolitical considerations, technology development, review of trade policies, and the role played by climate change and the energy transition, too. However, regardless of all these factors, geography will still matter, hence the importance of maritime chokepoints: they are here to stay and still exert influence on how goods will be shipped across the world.
The European Maritime Trade and the Challenges Ahead
Waterborne transport is of crucial importance within the European Union. Almost 90% of the EU's external freight trade and 40% of the intra EU-exchanges of goods and passengers are carried by sea. In the last quarter of 2020, 826 million tonnes of goods were handled in the EU’s main ports: this figure is still 4.6% below compared to the same quarter in 2019. However, the shipping industry has proven to be resilient enough and, through appropriate adaptation mechanisms, volume trend is expected to be positive in 2021 although trade may remain below 2019 levels, with the oil trade rebound expected to be muted, and pressure on coal imports continuing amid the ongoing 'green transition'. Prior to the outbreak of the COVID-19 global pandemic, seaborne trade involving the EU totalled 2.4bn tonnes in 2019, accounting for 20% of global seaborne trade (11.9bn tonnes). Intra-EU seaborne trade accounted for 0.6bn tonnes (5% of global seaborne trade) in 2019, seaborne EU external imports accounted for 1.3bn tonnes (11%), and seaborne EU external exports amounted to 0.5bn tonnes (4%).
China became the first destination for EU seaborne exports in 2020 (in tonnes), as volumes grew by 13.6% y-o-y, overtaking the US and securing a 13% share of total EU external seaborne exports in 2020. This trend was mainly due to the Chinese economy’s rapid recovery since April 2020, which supported Beijing’s demands, making China the only G20 country to grow in 2020.
On the other side, EU seaborne exports to the US accounted for 12% of total EU seaborne exports in 2020, down from 14% in 2019, as volumes fell by a sharp -18.4% y-o-y as a result of the impacts of COVID-19 on both economies. EU seaborne exports to the US were particularly vulnerable, with a large portion of this trade made up of oil products and cars, which saw particularly sharp impacts from the pandemic.
Furthermore, the European Maritime sector is committed to sharing the burden and reducing overall emissions. For instance, sulphur oxides and particulate matter emissions from shipping are projected to drop substantially up to 2050. Nevertheless, considering future trends and scenarios which suggest a continued growth of maritime transport over the next decades, additional efforts will be needed at both the EU and international levels to make the sector more sustainable.
Additionally, and in line with the European Green Deal and the Sustainable and Smart Mobility Strategy, delivering on the climate neutrality objective by 2050 will require an 80-82% reduction in emissions by the EU's international seagoing maritime transport sector by 2050 compared to 1990 levels. In this sense, onshore power supply is a promising solution to improve air quality in ports and coastal areas. Instead of using fuel, ships would recharge in ports. If electricity supply relies on clean and renewable energy sources, onshore power supply can reduce emissions at near to zero. Close to 10% of ships calling at EU ports are equipped with it, and numbers are steadily growing. Another promising solution comes from green hydrogen, which could ensure sustainable fuels for shipping at large scale. All of these solutions must comply with the European Sustainable and Smart Mobility Strategy, which indicates the zero-emission marine vessels will be market-ready by 2030, as well as zero-emissions ports.
The challenges ahead for the maritime sector are complex and intertwined. Digitalization, decarbonization, and new forms of goods delivery at a global scale must be on top of the international agenda to ensure the sector will evolve in a coordinated fashion and that it can be a central actor in an overall renovation of the way goods are designed, produced, and delivered for the wellbeing of people and the planet.
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