Shipping is a dynamic industry driven by a number of influencing factors and never has this been more apparent than in recent years when global supply chains have been put under the spotlight and the average person is suddenly an expert in supply chain related delays.
China, with its unmatched economic growth of the past few decades a key engine of the world’s economy, has long been working on ambitious plans to reduce their needs for imports with the ultimate aim of creating a more circular domestic economy. This has involved trillions of dollars in investment towards the planned expansion of the domestic manufacturing and refining base as well as the highly touted “Belt and Road Initiative” designed to shore up critical supply lines and expand China’s global reach.
All of this seemingly came to a screeching halt with the onset of COVID when the world as we knew it changed and went into lockdown. Nowhere were the “Anti-COVID” measures more extreme or protracted as in China and early in the pandemic a number of manufacturers pivoted by moving their manufacturing out of China to more accommodating countries like India in order to diversify their supply chains. The phenomenon has continued to evolve over the past three years and while the Chinese economy continues to labor, despite significant stimulus from the central government, India’s economy is expanding at a white-hot pace. The largest gains have been in electronics, where exports have tripled since 2018 to $23 billion in the year through end Q1-2023. For instance, India has gone from making 9% of the world’s smartphone handsets in 2016 to a projected 19% this year. Foreign direct investment into India averaged $42 billion annually from 2020 to 2022, a doubling in under a decade, according to central-bank figures.
With India’s own expansion comes the growing needs for critical materials to support the local manufacturing base and the close proximity to the Middle East region provides access to an abundance of critical materials.
With the Middle East producing in excess of 40 million metric tons per year nearly 2/3 of that volume would traditionally move East mainly to China. Over time, these volumes are seeing noticeable reductions specifically into China. Certainly, some of this has been demand displaced by China’s own chemical expansion (mega plants) but it is also a sign of a weaker Chinese economy. As India’s own economy grows it is emerging as a major consumer of volumes produced in the Middle East. As such, we are seeing a fundamental shift in the shipping markets out of the Middle East region which is having a significant impact on ton-mile and vessel utilization.
A typical voyage from the Middle East to China is around 18 days with a full round voyage including backhaul cargoes taking 50+ days. A round voyage from Middle East to West Coast India is closer to 14 days (barring any major delays synonymous with WCI) meaning shorter voyages and the ability to do more voyages for Owners looking to deploy assets on the route.
With these changes in trade patterns, we expect to see higher utilization rates and fewer ships available in Asia as a result. In addition, the new IMO emissions regulations now in effect means vessels are being graded based on their carbon intensity and the shorter trade routes coupled with better utilization potentially offer carriers refuge from the mounting regulatory pressures.
There is no doubt that the world’s second largest economy will continue to play a pivotal role in the global shipping markets; however, it was symbolic that the Asia Petrochemical Industry Conference (APIC) was held in South Asia, for the first time, last month. With the emergence of India as a major consumer we are seeing a significant realignment of the ton/mile for vessels trading out of the Middle East creating new opportunities and potentially fertile grounds for shippers and carriers alike.
By Andrew Paganucci
Senior Ship Broker
Quincannon Associates DMCC