3.

 GDP and international seaborne

trade: past trends, present breaks
and future directions
Siri Pettersen Strandenes and
Helen A. Thanopoulou

Professor Richard Goss (1929–2017); in memoriam

3.1 INTRODUCTION TO GROWTH AND TRADE

The seemingly unbreakable traditional link between the world economy

and shipping demand via the international trade of goods has been strained
lately to breaking point: the shift from a multiplier of two – between
growth and shipping demand – to half that value shook even relatively
more stable shipping segments such as containers (Sand 2017). This was
a radical reversal with potentially grave repercussions for ­shipping across
tonnage categories.
Demand dynamics created modern shipping. The long-term relation
between GDP growth and the world fleet itself – which kept on increas-
ing in response to growing trades – had been impressive since the era of
sail. The mixed sail and steam world tonnage grew much faster than did
the world GDP. This was observed during both the first and the second
Industrial Revolutions – with electricity being a defining moment for the
latter (Atkeson and Kehoe 2001) – and it continued to do so up to the
20th century. The same had been observed in the course of the earlier
Modern Times’ era (Maddison 2007) when sail was the exclusive means of
propulsion.
The first years of the 21st century seemed like a glorious return to a
durable golden age of shipping, ushering in a period of unprecedented
growth of seaborne supply and demand (Haralambides and Thanopoulou,
2014); yet, the financial crisis of 2008 dissipated any such prospects quickly.
Following the Lehman Brothers’ collapse, GDP and international trade
became markedly decoupled after trade growth resumed in 2010; the

­33

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 34 Geographies of maritime transport

break in their relation continued in subsequent years (UNCTAD 2016a).

This development could be attributed to some form of transient anomaly.
However, the possibility that this sudden break in a pattern established
over centuries suggested a permanent decoupling, prompting the authors
to re-evaluate the validity of GDP changes as a gauge of shipping demand
and to investigate alternative scenarios. It is the authors’ contention that
the underlying forces changing the long-term relationship between GDP
growth and international seaborne trade may be fundamental ones, sug-
gesting a turning point for world shipping irrespective of any short-lived
reversals that may be observed along the way.
This chapter aims at analysing the current demand environment, point-
ing to aspects which may affect negatively the conversion rate of economic
growth into more merchandise exchanges and which may be turning the
aforementioned recent break into a permanent trend. It is structured as fol-
lows: in the next section, the authors review the long-standing link between
the growth of GDP and international trade, with a focus on the impressive,
yet temporary as it proved, 21st-century developments between GDP,
trade and shipping demand growth before the 2008 financial crisis. The
third section analyses developments in the period after 2008 and emerging
trends with a potential to impact on the “growth-to-trade” conversion. In
the fourth section, the authors model seaborne trade on variables reflecting
changes in economic growth and in the material content of production and
energy. Conclusions summarize the dynamic impact of the dematerializa-
tion of world economic growth on future shipping demand prospects as
shown by the statistical significance of changes in the share of services in
global GDP; they also point to aspects which may restore, or alternatively
further undermine, the strength of the ­traditional link between GDP, trade
and shipping.

3.2 THE GLORIOUS START OF THE 21ST CENTURY

IN WORLD TRADE: A “BLEEP” WITH AN
EXPIRY DATE

The 21st century has seemed to continue – and even increase – the tradi-
tionally significant elasticity of seaborne trade to world economic growth
evidenced by the long-term development of the world fleet compared with
economic growth since the Industrial Revolution (Maddison 2007). The
first years of the current century, up to the financial crash in late 2008,
were marked by successive records of trade volumes mirrored in the freight
rate records, which rapidly succeeded each other across shipping markets
(Thanopoulou 2010).

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 GDP and international seaborne trade ­35

12,000

10,000

8,000

6,000

4,000

2,000

0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Based on UNCTAD (2016a) data.

Figure 3.1 Seaborne trade in million tons 1995–2016

Owing to the growth of seaborne trade at the time, exuberance in ship-

ping persisted for surprisingly long, despite the growth of the world fleet.
World tonnage was set to catch up with shipping demand through impres-
sive – yet apparently not materializing fast enough – newbuilding orders.
The unprecedented ratios of the latter to existing fleets in most tonnage
categories eventually would have returned markets to equilibrium – or well
below – even in the absence of the financial upheaval in which these “glori-
ous” years ended unceremoniously in September 2008 (Haralambides
and Thanopoulou 2014). As global economic activity declined sharply,
an unprecedented crisis in all markets followed. The pattern by which
international commerce was growing faster than the world economy was
interrupted abruptly (Slack 2010).
Yet, as Figure 3.1 shows, after a temporary decrease in 2009, shipping
demand resumed its growth in absolute figures, breaching even the sym-
bolic threshold of 10 billion tons of seaborne cargo by the middle of the
current decade. However, by then, the relation between GDP and interna-
tional trade growth had clearly been changing at a fast pace: by 2015, only
a few years after the recovery of world trade between 2009 and 2010, the
conversion rate between GDP and world merchandise trade growth rates
had been halved from its 2013 level of 1.40 to a low of 0.62 (UNCTAD
2016a, pp. 4 and 5).
Current respites cannot by themselves signal an imminent return to
historical averages of conversion rates (cf. Figure 3.2) as cyclical factors
may well be at their origin. While revising upwards the earlier projected
figures for major importing areas (IMF 2016; 2017) may be in itself a
positive sign for the short term, recent revisions of GDP growth rates still

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 36 Geographies of maritime transport

2.2

1.5
1.3

0.7

1970–1985 1986–2000 2001–2007 2008–2013

Source: Based on data in UNCTAD (2016b) and Constantinescu et al. (2015).

Figure 3.2 Long-term trade–GDP elasticity

Table 3.1 Percentage of real GDP growth, 2015–2018

Europe North America Japan World

2015 1.3 2.7 1.1 3.4
2016 1.6 1.5 1.0 3.2
2017 (projected) (1.8) 2.2 (2.2) 2.2 (0.6) 1.5 3.6
2018 (projected) 2.0 2.2 0.7 3.7

Note: Figures in brackets are earlier forecasts for 2017.

Source: IMF (2016 and 2017).

need to prove more than a “cyclical upswing” (IMF 2018, p. 2) to allow for
a clear restoration.
Indications for such a long-term return in terms of shipping demand
remain weak as well unless a spectacular or permanent reversal of –
mediocre or even falling – real GDP growth rates predicted for 2018 occurs
across major importing areas, including East Asia (Table 3.1). World
seaborne trade growth rates in 2016, despite their recovery, were still below
“the historical average of 3 per cent recorded over the past four decades”,
with recent forecasts for 2017 not expected to reach that average either
(UNCTAD 2017b, p. xi).
Shipping is no stranger to short intervals of negative developments
in the economy. However, what is important for its long-term prospects
is the strength of factors supporting the two components of effective

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 GDP and international seaborne trade ­37

–1

–2
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Source: Based on World Bank (2018) data.

Figure 3.3 World GDP growth (annual %), 1968–2016

s­hipping demand: volume and distance. With the current configuration

of world trade networks – which have expanded massively and fully over
the globalization era – the distance factor seems the weaker of these two
potential contributors to an expansion of shipping demand. On the strict
volume side measured in tonnes, the underlying changes taking place in the
world economy (Thanopoulou and Strandenes 2017a) do not ­guarantee
any imminent return close to the historical averages either.
As shown in Figure 3.3, in recent years seaborne trades have been receiv-
ing little help from the evolution of GDP growth rates, which have been
sluggish following the rebound from the immediate impact of the financial
crisis of 2008. The slow growth of the advanced economies and of a large
number of less privileged ones has prevented the strong regional growth
rates of Asian countries and of emerging economies elsewhere to fully
boost world GDP growth; in a long-term perspective, the latter has been
growing at rates nowhere near those prior to the first oil shock in 1973.
Throughout the decades that followed, the only period when GDP reached
4 per cent more durably than for the occasional rebound from a deep reces-
sion led to the most impressive shipping boom ever, between 2004 and the
emergence of the financial crisis in late 2008.
The unfolding of the latter resulted in negative growth of the world
economy for the first time after many decades, between 2008 and 2009,
thus signalling the end of the most impressive cyclical aberration in the
trade and shipping cycles in half a century.

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 38 Geographies of maritime transport

3.3 EXHAUSTING VOLUME AND DISTANCE: THE

PRESSURE ON SEABORNE TRADES

In the current context of structural changes in major trades, such as the

energy (Thanopoulou and Strandenes 2015), and the evident transforma-
tion of the world economy (Thanopoulou and Strandenes 2017a) by the
middle of this decade, it is essential to evaluate all factors that could affect
GDP-to-trade (and further to seaborne trade) conversion.
A combination of four major forces, – namely increased environmental
awareness, the quest for lean production processes, the quest for energy
independence and, last but not least, the general dematerialization of
world economic growth – has been considered a potential threat to future
volumes of goods to be traded (Figure 3.4).

The Post-Crisis Picture: a Trend Reversed or a Temporary Break?

That demand did not grow, in recent years, at the rate expected by the ship-
owning community has been one of the most astute formulations of a much

Lean Energy
Production Independence

TRADE GROWTH

Environmental Growth/ De-

Awareness materialization

Source: Thanopoulou and Strandenes (2017b) based on Thanopoulou and Strandenes

(2015) and Strandenes and Thanopoulou (2015).

Figure 3.4  orces with a limiting potential on the expansion of

F
­international trade

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 GDP and international seaborne trade ­39

complex problem (Lloyd’s List 2016): the effect of the broken link between
GDP growth and volumes of goods traded on shipping demand dynamics
and prospects. This break in the historical relation cannot be attributed
to any major mode shift, but rather to the exhaustion of the dynamism
of world exchanges. International trade statistics for 2015 revealed a very
weak year attributed to factors such as “economic slowdown in China,
a severe recession in Brazil, falling prices for oil and other commodities
and exchange rate volatility” (WTO 2016). However, these are all changes
of cyclical or short-term character, which by themselves cannot point to
a radical change in the fundamental relation between world growth and
international trade. What can influence the physical volume of goods
traded on a permanent basis – and by extension of seaborne trade which
carries 80 per cent of these or more (UNCTAD 2016a) – has to be sought
in structural changes.
Emerging economies and the drive of the growth of the world economy
by services have been pointed to recently as being at the root of this “lower
‘GDP-to-trade multiplier’, and thus generate a lower level of shipping
demand than we have been accustomed to” (Sand 2017). This is in line
with earlier analyses by Strandenes and Thanopoulou (2015) and by
Thanopoulou and Strandenes (2015), who pointed to factors potentially
transforming the relation between economic growth and demand for mari-
time transport, such as the rise of the share of renewables and – among
other developments – changes in production processes.
As international trade trends continue to be largely identified with
seaborne trade ones, factors affecting the former will impact directly on the
latter; that is unless initiatives such as China’s One Belt, One Road eventu-
ally result in a significant redistribution of transport mode participation in
the movement of goods internationally. However, the impact of this policy
remains an unknown quantity although increasing uncertainty (Swaine
2015).
The impact of such factors in the long term is particularly relevant for
shipping’s prospects as current and projected shipping supply growth rates
seem out of line with those of the world economy and trade (Figure 3.5).
Even assuming exceptional rates of “slippage” – a term that encompasses
non-materialized deliveries of newbuild orders placed – prospects for a
sustained equilibrium seem rather bleak even in segments that have fared
better more recently.
In any case, for a short- or medium-term cyclical reversal to be sup-
ported and for seaborne trade growth to return sustainably closer to its
average growth – which exceeded 4 per cent in the 20 years prior to 2008
(Clarksons Research 2017) – and absorb a still growing fleet capacity,
longer-term trends in the structure and location of world production and

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 40 Geographies of maritime transport

6.2 6.3 2016

2017

4.6
3.8
3.5 3.3 3.4
3.1
2.8
2.3

dry bulk tanker capacity container World Output World Trade

capacity capacity

Source: Based on figures in IMF (2016) and Lloyd’s List (2016).

Figure 3.5  hanges and projected changes in world output, trade and
C
major world fleet tonnage categories

merchandise exchange systems should be favourable. This seems a highly

debatable hypothesis in the current phase of the transformation of the
world economy (Strandenes and Thanopoulou 2015).

The Role of Future Energy Demand for GDP–Trade Conversion

While demographics of a world soon to include 8 billion people (United

Nations 2015) and economic growth could otherwise by themselves
support energy trades, technological developments along with societal
preferences may well suggest otherwise.
The long-term reign of fossil fuels is challenged expediently with the
impact of renewables being re-evaluated constantly (IEA 2016a) as the
dynamism of the latter is revealed to be greater than hypothesized, espe-
cially among current importers of large primary energy resources in the
form of dry and wet bulk cargoes.
The quest of a major energy importer such as China to drastically
reduce energy intensity – i.e. the relation between energy consumption per
GDP unit that has been planned by the middle of this decade (Zhou 2017)
– is underpinned by two, already mentioned, forces: protection of the envi-
ronment and energy independence that renewables can secure. Moreover,
while the potential for additional primary energy demand by India – with
a population growing at a rate due soon to challenge China as the most
populous country – is still large, even for a traditional fossil fuel such as
coal (Sengupta 2016), the country is also trying to curtail ­dependence on

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 GDP and international seaborne trade ­41

foreign imports of locally available resources, with renewables making

inroads as well (Harabin 2017). Such a policy is not only directed towards
transoceanic energy trades, thus creating concerns from neighbouring
exporting countries as well, especially as India’s coal production is growing
faster than demand can absorb (Reuters 2016).
At the same time, the use of renewables is eliminating not only the need
for fuel transport but also stages of production of energy units themselves.
Moreover, in the not very distant future, new techniques such as 3D print-
ing may “reduce the complexity and energy intensity of production”, and
thus the cost of renewable energy systems (Burston 2016).
Overall, due to the major role of primary energy sources in world trade,
the decrease of energy intensity – a trend long established in the new
economy (Kander 2005) – is starting to reflect in trade dynamics in the
context of an economic development paradigm which may still favour
growth but not necessarily volume (Strandenes and Thanopoulou 2015).

Dematerialized Trade: an Independent Threat to Seaborne Trade

Growth at the level of GDP may be restored at higher rates as most recent
projections suggest (IMF 2018), although current estimates do not seem
to herald dramatic changes. However, it is the material content of any
such growth, which forms, along with the network configuration of world
­merchandise exchanges, the basis for the increase in shipping demand.
Part of the changes observed in the GDP growth to – international and
maritime – trade conversion can be attributed to what has been called
the dematerialization of the world economy (Wernick et al. 1996). This
long trend, present in the development of the advanced economies (and
beyond) since before the 1990s, has led the current role of services in world
GDP to rise by several percentage points over the last two decades, as
shown in Figure 3.6, long after the initial wave of the shift towards services
had spread through the developed economies.
Over the 20-year period from 1995 to 2014, services gained about 10
percentage points in terms of share in the world GDP (World Bank 2017),
with a further rise in 2015 (World Bank 2018). This structural change is
evident across the world and has reached beyond the traditional major
advanced economies. Hence, even China has crossed already the 50 per
cent mark of share of services in its GDP (World Bank 2017), indicating
that the impact of the growth of this major importer on the world seaborne
trade may not remain the same in the future.

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 42 Geographies of maritime transport

69
68
68 68
68
67 67

66
66

64

2000 2007 2008 2009 2010 2011 2012 2013 2014 2015

Note: On the basis of value added in wholesale and retail trade (including hotels
and restaurants), transport, government, financial, professional and personal services
(education, health care, real estate services), including bank service charges, import duties
and discrepancies.

Source: Based on data in World Bank (2018).

Figure 3.6 Services as percentage of world GDP, 2005–2015

3.4 MODELLING MEDIUM- AND LONG-TERM

CHANGES AFFECTING THE GDP MULTIPLIER

In this section we model changes in seaborne trade both in terms of volume

of merchandise quantities traded by sea (as measured in tonnes) and on
the basis of tonne-miles, a series which represents better the configuration
of the world maritime network and is influenced more by changes in the
international division of labour (Clarksons SIN 2017; Fearnleys 2005).
These were regressed on independent variables reflecting changes in:

1. the growth of the world economy, as measured by GDP growth on

the basis of figures in the UNCTAD statistical database (UNCTAD
2017a);
2. the evolution of the material content of economic growth, as expressed
by the share of services in global GDP calculated on the basis of data
in UNCTAD (2016b);
3. energy developments affecting traded volume by sea (independently of
economic growth and cycles), as expressed by changes in the share of
renewables in primary energy production in IEA (2016b); and

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 GDP and international seaborne trade ­43

4. the share of intra-regional trade of Asia calculated on the basis of data

on GDP by type of expenditure in the UNCTAD statistical database.

Services Renewables Intraregional

ΔT 5 ΔGDP 2 Δ a b 2Δ a b 2Δ a b
GDP Primary energy Total Trade
(3.1)

The data cover the period from 1995 to 2015. The results of the regression
are shown in Table 3.2. As expected, results are significant for the sheer
volume of demand as expressed in tonnes. Related coefficients and signs
show to be strongly and negatively affected by the dematerialization of
world economic growth, as technology and the coverage of basic needs
allow the shift of the world economic activity towards services. The change
in composition of energy consumption towards more renewables, however,
has had no significant influence on seaborne trade in this period; nor has
the rising intraregional trade in Asia. Regression results for seaborne trade
in tonne-miles show a similar pattern.
The future world seaborne trade network configuration may well be
influenced also by emerging trends such as re-shoring, be that through
direct political will impacting on the “return” of the industrial activity
lost or through sheer protectionist measures. The latter is another factor
with the potential to aggravate the projected impact of all other ones taken
into account already in the analysis. Any such measures would prove any
­projected results based on our model optimistically underestimated.

3.5 CONCLUSIONS

Following its lengthy traditional mark on the growth of world seaborne

trade demand, the strong multiplier relation between GDP growth and
international trade has eventually been broken in a marked way after
2011–12 (UNCTAD 2016a). Although after the downturn of the world
economy in 2008 all trends or relations – traditional or less established –
proved quickly reversible, their full restoration did not prove automatic.
This prompted the authors to query the data for the presence of any
underlying long-term changes.
At this early stage of a potentially new trade paradigm, what emerged as
a key significant factor through the results of the regression in the previ-
ous section is the effect of the dematerialization of the world economic
growth. As this change is one assessed on very recent data, conclusions
should remain open as well as considered tentative. Further, the evolving

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WILMSMEIER_9781788976633_t.indd 44
Table 3.2 Regression results for the period 1995–2015

Dependent variable Seaborne trade (mill-tonnes) Seaborne trade (tonne-miles)

Intercept 0.0195 0.0469 0.0386 0.4020 0.0183 0.0608 0.0591 0.0435 0.0407
(−2.54) (4.79) (9.73) (9.96) (−1.91) (5.13) (5.28) (8.47) (8.09)
GDP growth (World) 0.8072 −0.3187 0.8685 −0.7141 −0.6533
(3.46) (−0.91) (2.96) (−1.69) (−1.64)
Change in service share of −4.2532 −3.6376 −3.9028 −6.8430 −6.9646 −4.8120 −4.5097

­44
GDP (World) (−3.24) (−5.51) (−5.82) (−4.31) (−4.53) (−5.76) (−5.39)
Change in share of renewable −0.3386 −0.2507
energy (World) (−0.90) (−0.55)
Change in intra-regional 0.1852 0.2102 −0.2778 −0.2665 −0.2396
share of total trade (Asia) (1.41) (1.65) (−1.75) (−1.73) (−1.49)
Adj. R square 0.3662 0.6515 0.6657 0.6335 0.2901 0.6398 0.6554 0.6214 0.5958
RMSE 0.02369 0.0175 0.01721 0.1802 0.0298 0.0212 0.02077 0.02177 0.0225

Source: Authors.

via Copenhagen Business School (CBS)

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 GDP and international seaborne trade ­45

c­ haracter of various other trends – such as the shifts to renewable energy

and to a new geographical configuration of important trade networks –
calls for their continuous monitoring in order to detect their significance
for GDP-to-trade conversion in the future.
However, it is at least certain that for future developments to favour
world demand for seaborne trade, both volume and distance must main-
tain pace. This seems less probable at a time when massive economies in
production materials and in energy combine with improved efficiencies at
all levels, while the margins for expansion of the average distance of the
world trade network seem rather exhausted following the period of high
economic activity between 2003 and 2007. Such a boom time for spending,
consuming and, hence, for creating shipping demand for imports may not
be on the cards in the foreseeable future for the middle classes of major
importing advanced economies which have boosted shipping demand
hitherto (Thanopoulou and Strandenes 2017b). Blooming middle classes
elsewhere may be closer to domestic production centres.
In practice, the sooner shipping becomes familiarized with the prob-
ability of a “non-shipping friendly” pattern of world growth, the sooner
the industry will return to healthier economic conditions. However, the
process of adaptation to any declining changing industry dynamics is
not one that is adopted by all economic agents to the appropriate extent
or in time. Shipping catches up first and faster with positive dynamics.
Bulk carrier scrapping reduced drastically as the market was improving
marginally soon after the worst recorded freight rates in February 2016
(Hellenic Shipping News 2016) in the same way new orders had responded
positively, fast and massively, to short-lived changes in the market climate
in the second half of 2013 as investors were reading “recovery” into what
proved mere seasonality.
Yet, recent compounding factors may paint an even gloomier future
picture for the relation between growth and shipping demand. While
restrained orders in the dry bulk and container sectors in 2017 seemed to
hold some promise for the main shipping markets to recover, strong new
orders of bulkers had been recorded again by the spring of 2018 following
market recovery (Hellenic Shipping News 2018). That was just the time
when trade tariffs were announced by the US suddenly impacting on both
world markets and market hopefuls. While the impact of new orders is
invariably detrimental for the level of freight rates, this type of strong pro-
tectionist measures may range from modestly detrimental to catastrophic,
depending on their extent and duration. The future is definitely not easy
to forecast; especially if its assessment indicates that it may not be bright.

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 46 Geographies of maritime transport

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