Robert Nutter Watford Grammar School for Girls

October 2013

Sea transport and its impact on globalisation
It is a normal...
Robert Nutter Watford Grammar School for Girls

However, as container ships grow ever larger there
are doubts as to whethe...
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econoMAX - Sea transport and its impact on globalisation

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It is a normal rule of thumb that the volume of world trade tends to grow at double the rate of growth of world GDP. Between 1990 and 2008 global real GDP expanded at an average annual rate of growth of 3.2% while world trade volume grew at an average of growth of 6%. However, in the last two years world trade volume has risen by 4.8 per cent while real GDP has risen by only 4.0 percent. If the normal 2:1 ratio had applied, trade growth would have been about 3.2 per cent higher. The slowdown in the growth of world trade can be partly explained by the economic difficulties in the euro zone in 2012 and more latterly in the BRIC economies. In addition there has been a growth in protectionism since the start of the economic crisis in 2008.

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econoMAX - Sea transport and its impact on globalisation

  1. 1. Robert Nutter Watford Grammar School for Girls October 2013 Sea transport and its impact on globalisation It is a normal rule of thumb that the volume of world trade tends to grow at double the rate of growth of world GDP. Between 1990 and 2008 global real GDP expanded at an average annual rate of growth of 3.2% while world trade volume grew at an average of growth of 6%. However, in the last two years world trade volume has risen by 4.8 per cent while real GDP has risen by only 4.0 percent. If the normal 2:1 ratio had applied, trade growth would have been about 3.2 per cent higher. The slowdown in the growth of world trade can be partly explained by the economic difficulties in the euro zone in 2012 and more latterly in the BRIC economies. In addition there has been a growth in protectionism since the start of the economic crisis in 2008. World trade growth, despite the current slowdown, has contributed significantly to globalisation in the last 25 years, and the growth in trade carried by sea has been a big part of this. Trade carried by sea has grown fourfold since 1970. There are now at any given time 100,000 ships at sea and 6,000 of these are container ships carrying in total 20 million containers. Before container ships transport costs were on average 25% of the value of the goods carried. Since then containerisation has slashed the transport cost so much that a sweater being sent from its place of manufacture in the Far East to the USA has transport costs of only 2.5c. Fish caught in UK waters such as Scottish cod, prawns or cockles can now be sent thousands of miles to low cost countries such as the Philippines to be processed. Huge container ships gain significant benefits from economies of scale; more precisely the economies of increased dimensions where the transportation cost per container has fallen as the size of vessels has increased. The largest container ships can carry 15,000 boxes and in 2014 Triple E Class ships will be launched which can carry 18,000. The significance of growth in trade by sea to globalisation will be enhanced further by the widening of the Panama Canal due to be completed in 2015 and the possibility of a new Central American canal being built through Nicaragua. The proposed Inter-Ocean Nicaragua Canal is being planned by a Hong Kong based consortium. These two projects will give ships from the Far East quicker and easier access to ports on the north-east seaboard of the US.
  2. 2. Robert Nutter Watford Grammar School for Girls However, as container ships grow ever larger there are doubts as to whether the canals or even some of the US ports can cope with their huge capacity. Of additional significance is global warming in the Arctic which is likely to free up the famous NorthWest Passage from ice at least in the summer. A large freighter completed a voyage through the hazardous Northwest Passage for the first time in October 2013, showing the potential for cutting shipment times and costs as global warming opens up new routes. The 75,000 ton Nordic Orion left the Canadian Pacific port of Vancouver in early September and was scheduled to arrive in the Finnish port of Pori on October 7. The North West Passage across the Arctic is shorter than the traditional route through the Panama Canal and thereby has the potential to generate important savings in time, fuel and CO2 emissions. The fuel savings alone add up to approximately $80,000. In addition this new route can mean full utilisation of a ship’s capacity allowing more cargo to be carried than through the Panama Canal where there are draft limits due to the canal’s depth. There are also significant container port developments all over the world, many of which are operations funded by DP World (Dubai Ports). Operating more than 60 terminals across six continents, DP World is expanding its container-handling capabilities worldwide, including London Gateway which is scheduled to open in late 2013. DP claim that the logistics offered by London Gateway give savings in haulage costs of $300 per container for goods distributed around London and $94 per container for goods to the Midlands. There is thus little doubt that larger capacity vessels, improvements in sea routes and continued developments in port handling facilities will enable containerisation to extend its contribution to globalisation in the years ahead. Further reading on this subject can be found in Rose George’s book: Deep Sea and Foreign Going: Inside shipping, the invisible industry that brings you 90% of everything.

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