Welcome to Trade Data Service. This site is about the understanding the forces that shape trade in goods and what that means for exports, importers, and the global transportation business. Our analysis serves a simple purpose: to help you make better business decisions, by analysing historical and current developments, and providing an assessment of what may happen in the near to long term future.
This first article looks at the things that shape our thinking about the prospects for world trade in goods: the markets that matter, how trade relates to economic activity, the importance of air, sea, road and rail and the factors that drive or destroy growth.
The Markets that Matter
World economic activity is concentrated in only a handful of markets – primarily the US, China, the European Union and United Kingdom, Japan, and India (see Figure 1). Most trade is between these markets and as such it is activity in these economies that volume growth, deployment of capacity and freight rates.
A look at the world population tells a different story and is important in assessing possibly future growth prospects. Here Africa and South Asia carry much more weight (see Figure 2)
Of course, on micro-level every market matters. Trade Data Service will devote time to both larger and smaller markets. Some examples will include connectivity and trade throughout islands of the Pacific, Central Asia, re-emerging Southeast Asia and markets in Latin America and across the African continent.
Trade and the World Economy
Over the longer term the importance of trade has increased. The trade intensity of the world economy grew from around 16% in the 1960s to a peak of 51% in 2008. Since then, it has stagnated at around 45% since then (see Figure 3). Whether or not the world economy has reached “peak trade” is a topic we intend to cover widely in our future research, along with related issues such as near, friend, or domestic shoring.
In value terms, manufactures have accounted for about 65%-70% of the value of merchandise, or “visible” trade. Trade in food accounts for about 8%, and fuels, mining, and other agricultural products for the balance. In weight terms bulk products such as coal, iron ore, grain, crude oil are dominant.
Transport Mode Share
Bulk Shipping, Container Shipping and Air Cargo are the dominant modes of transport for intercontinental trade. Air accounts for only a small portion of the weight, but around 40% of total trade value. Figure 4 provides an example for trade in an out of the US between 2013 and 2022. The figure excludes Mexico, where rail and road are the dominant modes of transport.
*Excludes Mexico and Canada, 2022 Jan – Oct only
Road and rail are the primary modes of transport in intra-regional markets with land borders but have a limited role on intercontinental services. However, there are exceptions. For example, long distance rail plays an important and increasing role in trade between China and Europe. This has implications for both air cargo and to a lesser degree container shipping. Mode share developments and shift between modes is a key topic of interest for us and has implications for investment in and deployment of transportation assets.
What Drives Trade
When trying to gauge the prospects for trade growth, our first port of call is to understand the outlook for changes in economic output. Growth in the value of trade is positively correlated with growth of the world economy, with trade generally growing at a multiple of 1.5 of world GDP growth (see Figure 5).
However, the strength if this relationship varies from year to year and when we start to move down to a regional and commodity level, then a broader set of indicators is required to explain past performance and predict the future.
Relevant indicators include those that point towards changes in consumption, production, and investments. From the perspective of opportunities for growth there are developments that we like to see, that are worrying, as well as those that can go either way – good for some but not for not others.
Things We Like to See
- Increased levels of industrial production. Global supply chain and manufacturing are the lifeblood of world trade.
- Investment in new production facilities as a driver of future growth
- Increased activities of multinational firms and those operate across borders
- Higher semiconductors sales: chips power everything and semiconductor sales are a good indicator of near-term production perspectives
- Positive levels of business and consumer confidence
- Increases in spending
Good for Some, Bad for Others
- Exchange rate movements. A drop in currency values can boost exports but is likely to make imports more expensive.
- Protectionism and trade wars. When tariffs and subsidies are applies it is usually the consumer that loses out, but in some cases, this allows individual countries or businesses to improve their competitive position.
- Market shocks because of weather, natural disasters, industrial action, or wars. These are not predictable but can set in motion events that fundamentally change markets and the short to long term outlook. The 2+ year COVID pandemic is a recent example, of course.
Things that Worry Us
- Increasing or high energy prices. These have inflationary effect both on the cost of goods as well as the cost of transportation
- Inflation: expressive labour and production cost inflation can destroy a country’s competitiveness and attractiveness as a base for manufacturing, while excessive consumer price inflation destroys purchasing power and reduces consumer demand
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