How shipping trade lanes will evolve with new partnerships

The world’s shipping traffic is heavily directed by trade demands. Few examples illustrate this point quite like the Panama Canal, where committed workers divided a continent to create more efficient shipping routes, changing the passage of cargo vessels forever.

However, it’s not just physical changes like new shipping lanes that direct the flow of trade by sea freight. A new report from Ti Insight found that international trade partnerships can greatly change the flow of sea traffic between regions. As intra-regional trade lanes continue to be the most valuable, and therefore the busiest, agreements such as the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are extremely important to the international shipping and freight forwarding industry.

The busiest lanes aren’t international trade routes

Ti Insight found that the world’s 10 busiest regional trade routes account for 78 per cent of global trade value, indicating just how much cargo is never shipped beyond the region it originates from. The top three of this list alone account for more than half of all international trade.

According to Ti Insight, these are trends that are likely to remain fairly constant. While their overall market share may begin to dip slightly as international partnerships shift demand for goods, intra-regional trade lanes are likely to remain the busiest overall as their use isn’t predicated on international trade agreements remaining stable.

Ernst & Young (EY) also investigated the changing trade flows across the world, confirming Ti Insight’s view that there will be shifts as new economic powers arise. EY found that growing Asian markets will be an important catalyst for the kinds of intra-regional trade flows that continue to dominate global freight, with shipping between China and India in particular expected to rise at a rate of 22 per cent per year through to 2020.

Another insight levied by EY is the nature of trade across borders. More than a third of companies surveyed by the firm are consistently shipping goods between their various offices, rather than to customers, so international shipping demand isn’t entirely customer-driven. Overall, EY noted that international trade in general will be focused on Europe, Africa and the Middle East, so it’s essential for businesses to engage with freight forwarders that have vast international experience.

How could the TPP impact these trends?

The TPP is a trade agreement that sets to unite up to 12 countries from a number of continents scattered around the Pacific Rim, including the US, Japan, Mexico and New Zealand. The agreement is expected to reduce or remove a significant number of tariffs between the member countries, freeing up trade and incentivising imports and exports across the Pacific Ocean.

However, the TPP has so far been met with some controversy, as while the agreement has been signed, it still isn’t in force. Recently, President-elect Donald Trump cast further doubt on the TPP’s future, claiming it was the first thing he would pull out of once he took office. Consequently, according to a BBC report, Japan is also unsure of its status and claimed the TPP wouldn’t be valuable without the US.

If the TPP were to go ahead as intended, the lowered tariffs would likely lead to greater activity between regions, with a significant focus on trade lanes throughout the Pacific.

Would the TTIP have similar effects?

Unlike the TTP, the TTIP is currently still in negotiation, and concerns a potential trade agreement between the US and the European Union (EU). Essentially, its aims are to create stronger connections with EU markets for goods made in the US. If it were to go through, it could promote greater use of the various cross-Atlantic shipping lanes.

Overall, intra-regional trade is likely to remain the dominant force for sea freight. However, if newly proposed trade agreements that aim to unite the continents are successful, it could at least impact its market share and move shipping traffic into new routes.

To find out more about shipping goods internationally, get in touch with the team at Freightplus.