IONS Seminar 2014 - Session 2 - Seaborne Trade in the Indian Ocean
Dr P K Ghosh MBA, MA, MSc PhD
Senior Fellow- Observer Research Foundation
Former Co Chair and India Rep : CSCAP international
Study Group on Maritime Security
Maritime Economy and Sea Trade in
the Indian Ocean
The Indian Ocean is a particularly heightened
and concentrated form of the global reality
embodied in maritime commerce
- ―Maritime Commerce and Security,‖ A Stimsons Report
Indian Ocean is an ―active‖ ocean hosting a
spectrum of activities ranging from extensive
trade, transportation of energy to political
turmoil and asymmetric challenges
Some Aspects of Maritime Commerce in IOR
• Unfortunately, in modern days maritime commerce is often
opaque and incomprehensible to those unfamiliar with it.
The shipping industry often feels neglected and
misunderstood by outsiders
• Maximum trade with the Indian Ocean littorals is sea
borne, They effectively form the lifelines for these states.
• Economic globalization is founded on the bulwark of SLOC
safety and security.
• There are enough instances of incidents of interdiction of
SLOCs in IOR with disastrous effects on some of the
• Global sea-borne trade that was around 21,480
billion ton-miles in 1999 by linear projection
methodology was expected to rise to 41,800 billion
ton-miles by 2014 but 2008 happened …
• In 2010 a 2% led to a 8.6per cent growth in the world
fleet. seaborne trade grew by 4 per cent in 2011.
Shipping Industry and associated aspects
• The lag time between capital investment in
procurement / construction of ships.
• In 2008 decline in trade volumes led to a decline in
freight revenues, and in valuation of vessels – with
over-exposure on mortgages, and a crisis in the
• Shipping trade the increase in size and specialization
of vessels has been accompanied by a high degree of
automation in both port handling and navigation.
• The rise of new and emerging shipping
conglomerates and port super- corporations, many
with Chinese origins have created new dynamics in
maritime commerce economy.
• Smaller powers such Singapore and some Gulf
countries all wield influence disproportionate to size.
Increasing Size of Ships
• Have been steadily increasing over the years as the
sizes of containerships has jumped in two steps since
First step the size increased from 4,000 to 8,000 TEUs, to
move beyond the Panamax threshold.
Next step it reached the 12,500 TEU level and beyond
which would make these ships reach the Suezmax size and
• This places intense pressures on infrastructure
investments . Port capacities determine the type of
ships that can visit that port.
• Benefits of scale achieved at sea may be lost through
higher terminal and hinterland transportation costs.
• Development of exceptionally large container vessels
has led to the replacement of previous point to point
Evolution of Shipping Hubs
• Containerized cargo trade has encouraged the growth
of direct oceanic distances has led to the evolution of
• Most of these intermediate hubs are located near
the equatorial maritime route.
• Large vessels that are used for long-distance, high
capacity routes while smaller associated ports could
be used for lower capacity ships.
• There is a limit to the hub-and-spoke network
configuration and also to the large sizes the ships.
Liner Shipping Connectivity Index LSCI
• Measure of a country’s connectivity to maritime
shipping and is a measure of trade facilitation.
• Country’s level of integration into the existing liner
shipping network by measuring liner shipping
• The countries that have the highest LSCI values are
export-oriented economies of China and Hong Kong
and Singapore as a transshipment hub.
The Baltic Dry Exchange Index BDI
• Is a fundamental barometer of the state of global
trade it measures the demand for shipping vis-a-vis
the supply of bulk carriers available to meet that
Privatization of Ports
• Many countries are realizing that their nationalized
ports (main as well as subsidiary ones) cannot
compete with the efficiencies offered by the private
• Today, the industry is generating more than US$ 50
billion global business with several distinct specialized
• Rise in maritime trade and shipping has led to
attendant rise in maritime crime and transnational
threats in the region.
• Issues like Piracy ,Terrorism, illegal arms transfers,
drug running etc have come to the fore.
• Already become clear in the case of Somali piracy
how such localized conflicts can do significant
damage to the security and costs of global seaborne
• Countering these threats requires cooperative
approaches between the littorals and assistance of
more capable countries in capacity building the other
less capable maritime agencies.
• Initiatives like Indian Ocean Naval Symposium
(IONS) (started by India) and those like IORA
(Indian Ocean Rim Association) ARF, ADMM Plus
etc can be used for cooperative approaches.
Types of Trade
• Modern concept of containerized sea transport, is the
dominant mode of transporting goods.
• Overall seaborne trade consists of ―bulk cargo‖ or
―general cargo‖. The bulk cargo category includes
liquid bulk, dry bulk and specialist bulk.
• Four main vessel types service the bulk trades –
tankers, bulk carriers, combined carriers and
specialist bulk carriers.
• Roughly 20 million containers moving around the
world today containers have become the most
fundamental and essential element of modern
shipping. It has "made globalization possible.―
• Over the last two decades, it has increased an
average of about rate of 9.8 % annually
• Over 80 % of the value of world international
seaborne trade is containerized.
• Due low level of industrialization in IOR,
containerization levels rarely tend to cross above the
25 % mark.
• As a consequence , littorals are faced with little option
but to invest in numerous ports, inland depots.
• P 3- Marsek Line, CMA CGM, Mediterranean
Shipping to form shipping cargo Alliance to jointly
deploy 255 vessels and 2.6 million containers.
• Freight rates fallen by 50% this year.
• Hapag Loyd and CSAV to challenge P3.
• Oil tanker tonnage reached half a billion dwt in
• There will be consolidation amongst oil tanker fleets
with large corporations gaining.
• With high oil prices and lack of onshore storage
capacity many major producers notably Iran had at
one time stored unsold crude in VLCCs and ULCCs.
• Oil price contango occurred.
• Overall the tanker market is quite resilient, flexible
and dynamic in the short term.
• With the world usage of petroleum and other liquid
fuels growing from 87 million barrels per day in
2010 to 97 million barrels per day in 2020 and 115
million barrels per day in 2040.
• Resource heartland of the Persian Gulf to the
energy deficient "energy demand heartland‖ of Asia
comprising of states like India, China and Japan.
LNG and LPG
• Liquefied Gas trades sector has been comparatively
• In 2009 there was a slump due to Japan the largest
importer reducing imports.
• This was since majority of LNG carriers are
contracted for up to 20 years at rates that are
relatively fixed for the contact period. Hence, owners
continued to enjoy the best earnings.
• Major bulk trades – iron ore, grain and soy, coal,
phosphate rock and bauxite, and alumina
mainly so in IOR.
• About 50% of major bulk trade consists of material
for the steel industry—coal and iron ore.
• Trade in coal. South Africa, Indonesia and Australia
between them account for more than half of the
world’s exports of thermal coal. China and India are
the top importers.
• Even though India is not as significant in the global
shipping industry as China, Korea or Japan, its
growing role in global trade and its location makes it
an important player in maritime commerce.
• India’s share in world merchandise exports is just
over 1 %. India is way behind China which
constituted 12.4% of Chinese exports in 2008.
• Export and Import Composition
• India has diversified its export base as well.
• Manufactured products comprise about 70 % of the exports.
• It is moving towards a services dominated GDP growth.
• Most of India’s imports consist of intermediate goods
followed by capital goods.
• From 83.5 % in 2001 to just over 75 % in 2007. Capital
goods is 15 %. Consumer goods which is also low, hovers
around 3 to 4 % currently. fuel imports is about 34 % while
the share of fertilizers and food items is about 3 % .
• India’s shipping predict the highest growth in
Container movements as more and more bulk
cargoes are shipped in containers along with the
improvement of India’s infrastructure
• More than 50 % of India’s containers end up at the
JNPT near Mumbai
Commodity Annual Growth (%)
Iron Ore 4.36
Container Tonnage 23.61
Container in Million TEUs 27.72
Other Cargo 8.90
Table: India - Annual Trade Growth Projections
• The most significant driver of trade and shipping in
the world today.
• Increase in China’s share of world exports is around
39 per cent of the total increase in the share of
emerging and developing countries
• To secure its energy security
-Diversification of sources
-Shorten shipping routes by building transnational pipelines
• Earlier China required 25 VLCCs for its oil from
Africa and 24 VLCCs from Gulf to China for its oil
• By 2020, the requirement will grow to require 58
VLCCs from Gulf and another 53 VLCCs from
Africa to carry a total of 4.8 million bpd of crude.
The African Continent
• Spectacular increase in trade & shipping. Africa’s
total merchandise trade increased from $217 billion
in 1995 to $986 billion in 2008.
• Energy accounts for a large proportion of Africa’s
• From 2010, 16 of the 54 countries in Africa are
exporters of oil. In 2010, Africa’s oil production
represented 12.4% of the world’s total crude oil
• A marked shift in trade being directed towards
developing countries rather than West Europe and
The increasing dependence on energy from Western Asia as
production from other regions is already tending to plateau.
Hence, the energy traffic to dependent countries to increase
significantly with more pressure on the choke points and the
existing shipping lanes.
Containerization levels rarely tend to cross above the 25 per
cent mark making it inevitable for those littorals to invest in
ports, inland depots. This in turn, will increase coastal
traffic across the region arising from transshipment and
coastal connectivity needs.
Ship sizes are likely increase in the near future to a certain
Larger container ships currently operate on the
main global networks along the equator. While
medium and smaller sized ships are forced to
operate on feeder routes.
P3 Alliance monopoly, with 50% fall in freight rates.
Dry bulk and container shipping to and from
developing countries are likely to continue to grow.
South-South trade is growing while trade with
developed countries is declining in importance.
More countries will actively try to increase
privatization and infusion of foreign companies in
the ports building infrastructure.
• Primarily sea borne trade in Indian Ocean is likely to
remain diverse and vibrant in the foreseeable future.
The emerging patterns of vessel trade across the
ocean will be shaped by their economic efficiencies.