Global Outlook Through Stats

By Carly Fields

COVER STORY — Statistically speaking, only 6 percent of the people reading this magazine will have their dream job, against 18 percent who believe they’ve seen a ghost. There’s a one-in-a-hundred chance that a reader has red hair, but a one-in-four chance that they do not get a hangover if they drink. Only 6 percent of readers will suffer from an Internet addiction; they may also make up the 15 percent that are certain that the world will end in their lifetime.

While relating to one or more of these statistics is entirely possible, they likely have little foundation in fact. They do, however, do a good job of demonstrating the intriguing nature of statistics and why as an industry we salivate at the opportunity to map statistics to the breakbulk and project cargo sector.

It is easy to get bogged down in the minutiae, but taking a macro view of the global outlook via statistics can be a worthwhile exercise.

At the top of the tree is economic growth. Who’s developing at a pace and will therefore soon come calling on the services of the project cargo industry for energy and infrastructure support, and whose development is on the wane, necessitating a measured retreat? The International Monetary Fund, or IMF, is a big hitter on this statistical front.

Its World Economic Outlook from October 2018 expected growth in emerging market and developing economies to remain steady at 4.7 percent in 2018-19, and to rise modestly over the medium term. However, the forecast picture is less balanced than in previous outlooks. For example, in China, growth is projected to moderate from 6.9 percent in 2017 to 6.6 percent in 2018 and 6.2 percent in 2019, “reflecting slowing external demand growth and necessary financial regulatory tightening,” in conjunction with the “negative effect of recent tariff actions.” Medium term growth is expected to gradually slow to 5.6 percent as the economy continues to make the transition to a more sustainable growth path with continued financial de-risking and environmental controls.

Yet, elsewhere in Asia, growth is projected to remain strong: India’s growth is expected to increase to 7.3 percent in 2018 and 7.4 percent in 2019, up from 6.7 percent in 2017. In the Americas, Mexico’s growth is projected to increase from 2.0 percent in 2017 to 2.2 percent in 2018 and 2.5 percent in 2019, supported by higher U.S. growth, while Brazil’s economy is expected to grow at 1.4 percent and 2.4 percent in 2018 and 2019, respectively, up from 1 percent growth in 2017, driven by a recovery of private demand as the output gap gradually closes.

Tempering Optimism

But the Organisation for Economic Co-operation and Development, another redoubtable statistical source, is a little more downbeat. Its latest economic update, OECD Interim Economic Outlook from September 2018, spoke of “high uncertainty weighing on global growth,” and of expansion that may have peaked. Global GDP growth is projected to settle at 3.7 percent in 2018 and 2019, marginally below pre-crisis norms, with downside risks intensifying. Growth, it stated, has become less broad-based, with prospects diverging across the major economies, especially among the emerging market economies.

“Trade tensions are starting to bite and are already having adverse effects on confidence and investment plans,” OECD Chief Economist Laurence Boone said. “Trade growth has stalled, restrictions are having marked sectoral effects and the level of uncertainty on trade stances remains high. It is urgent for countries to end the slide towards further protectionism, reinforce the global rules‑based international trade system and boost international dialogue, which will provide business with the confidence to invest. With tighter financial conditions creating stress on a number of emerging economies, especially Turkey and Argentina, a strong and stable policy framework will be key to avoid further turbulence.”

Boone added: “Growth had trended downward for decades, well before the financial crisis, partly due to demographics and the benefits of growth were not equally felt by everybody. We have not recovered the lost prosperity from the financial crisis. So, if we had an issue with the strength of prosperity before, it is an even bigger issue today.”Biggest Economies

Having digested those figures, project cargo operators wondering where to focus marketing efforts might gain further insight from the IMF’s data on the world’s biggest economies. The headline is that the U.S. economy increased from about US$19.4 trillion in 2017 to US$20.4 trillion this year, followed by China at US$14 trillion, an increase of more than US$2 trillion in comparison to 2017. Japan was in third place with an economy of US$5.1 trillion, up from US$4.87 trillion a year previously. With a global economy worth an estimated US$79.98 trillion, the U.S. accounts for more than one-quarter of the world total.

But behind the headline figures, U.S. dominance appears to be sliding. According to data from the World Bank, the global economy will expand by US$6.5 trillion between 2017 and 2019 with U.S. GDP expected to account for 17.9 percent of this growth. China, however, is predicted to account for almost double this, at 35.2 percent.

Narrowing the scope a little further, there could be reason to smile on the trade front. Kuehne + Nagel subsidiary LogIndex AG uses big data and predictive analytics based on more than 25,000 time series to provide nowcasting estimates for economic indicators of the largest economies. Its gKNi World Trade Indicator revealed an upward track for much of 2018 to end-September, with pockets of continued optimism. The World Trade Indicator – a US$ value indicator influenced by inflationary pressures, in particular higher energy prices – stood at 141.0 at the end of September, up 5.8 percent year-on-year. However, growth has flattened off.

World trade proved to be strong in North America (+9.1 percent), as well as in Central and South America (+9.4 percent). Asia, which had a strong start to the year, had proved to be “less dynamic” by the September analysis, while Europe was “the least dynamic.”

Compounding this, industrial production – measured by the gKNi World Industrial Production, a real-time assessment of the activity in the manufacturing and mining sector around the globe – reached a 38-month low in September.

Trade Still Upbeat

Another trade focused index, DHL’s Global Trade Barometer, or GTB, forecasts trade growth through to the end of the year, but at a slower pace. As of September – the most recent quarterly calculation – the index stood at 63 points. In the GTB methodology, an index value above 50 indicates positive growth, while values below 50 indicate contraction.

Launched in January 2018, the GTB is an indicator based on trade of intermediates and early-cycle goods, drawing on import and export data from seven countries representing 75 percent of global trade to create a three-month outlook for global trade. In a ranking, India topped the chart with an index of 83, indicating strong expansion, followed by South Korea at 69, Japan at 64 and China at 63. India’s development is fueled by growth for air (72 points) and ocean trade (89 points).

Tim Scharwath, CEO DHL Global Forwarding, Freight, said: “For the last quarters, India has performed very strongly in our DHL GTB. In September the country showed the highest growth prospects of all seven countries covered in the DHL GTB. We see the reason for India’s positive outlook in their strengths in key industries. Some Indian private companies are – in a global comparison – among the leaders in their sectors, for example, Tata or Infosys. The GTB predicts particular strong growth for the sectors: high technology, machinery parts and basic raw materials.”

While DHL points up India as a focal point for breakbulk and project cargo operators, there are reasons to be cautious on the statistics for Mexico.Wave Goodbye To Mexico

Producing 2.1 million barrels per day in 2017, Mexico is one of the largest oil producers in the world and the third-largest in the Americas after the U.S. and Canada. According to the U.S. Department of Commerce’s International Trade Administration, oil is a crucial component of Mexico’s economy and earnings from the oil industry accounted for about 32 percent of government revenue in 2017.

Further, significant oil reserves have been documented in Mexico, which would under normal conditions drive investments from the private sector and offer global project cargo companies opportunities, either as project developers, operators, contractors, sub-contractors, or suppliers of equipment and/or technology.

However, not all in the Mexican garden is rosy. For Reggie Thompson, Latin America analyst at intelligence platform Stratfor, Mexico is becoming a cause for concern when it comes to providing future oil and gas-related project cargo work.

He explained that Mexico’s President-elect Andres Manuel Lopez Obrador’s and his administration are laying the groundwork to help their National Regeneration Movement remain Mexico’s strongest political party. To that end, they plan to increase social spending and also expand ties to the national teachers’ unions and federal oil and gas unions to garner votes. But they are also considering using their control of Congress to tighten authority over the exploration for and production of oil and natural gas, and in doing so, slow foreign investment in the sector.

“In broad terms, Mexican President-elect Andres Manuel Lopez Obrador intends to continue the Mexican energy sector’s opening to private capital but on terms that are more favorable to the Mexican government,” Thompson said. “He intends to do this mainly by granting Pemex a more central role in managing upstream oil and gas resources.”

This will give Pemex the ability to directly partner with private companies, rather than receiving approval from the National Hydrocarbons Commission.

Complete Contract Review

The Obrador administration also plans to review oil and gas contracts for areas auctioned between 2015 and 2018, apparently “to learn more about how the auctions were conducted so that fiscal loopholes can be closed,” Thompson said.

The new government will also try to find additional funding for Pemex activities, such as heavier exploration and production, possibly through an initial public offering, and it may slow or completely halt auctions through the National Hydrocarbons Commission, or CNH, for years. To do this, it would most likely slow or halt cabinet ministries’ cooperation with the CNH on competitive bidding rounds with the intent of slowing the entry of private capital through auctions that do not directly involve Pemex.

“It’s not clear whether Andres Manuel Lopez Obrador’s government is going to try to change the Constitution to sideline the CNH from any direct role in auctioning oil and gas blocks,” Thompson said.

The government is also attempting to get funding for a new refinery in Dos Bocas, Tabasco state, so that Mexico can eventually reduce its rising imports of U.S. gasoline.

The effects of these plans could be far-reaching, although they largely depend on what combination of reforms the president-elect is able to get through Congress. “If he successfully manages to sideline the CNH into a secondary role and makes Pemex the go-to institution for companies investing in oil and gas in Mexico, then Mexico’s attractiveness to foreign investors could decline if there are concerns over whether Pemex is being fully transparent and fair,” Thompson said.

“On the other hand, raising national content but leaving the roles of Mexico’s energy regulators broadly unchanged would have a lesser effect.” Downstream activity is far less likely to be affected by Obrador’s reform drive, as it mostly focuses on administration of upstream resources.

Certainly, the political moves in Mexico warn of changes to its future statistics on oil exploration and production. Weigh that against the India upgrades and the positive numbers on trade indices and the statistical scales may only just tip in the favor of breakbulk and project cargo business.

Carly Fields has reported on the shipping industry for 18 years, covering bunkers and broking and much in between.

Photo credit: Shutterstock

WANT MORE LIKE THIS?

Subscribe to Breakbulk Magazine. Published six times a year, the magazine includes insight and analysis on the biggest issues facing the project cargo and breakbulk industry, profiles and commentary from leading shippers, event previews and lots more. Digital is free - just sign up! The print subscription is $48 a year, which includes shipping worldwide. You might also like our weekly Newswire - try it out, it's always free.