Drewry: Free Trade Agreements Good for Container Shipping

The recently signed Trans-Pacific Partnership (TTP) deal is the latest and biggest of the growing number of free trade agreements (FTAs) that promise heightened container growth for participating countries, according to U.K.-based shipping consultant Drewry.

There is still much to be done before TPP becomes active, especially as Hillary Clinton, the front-running U.S. presidential candidate for the Democratic Party, has voiced her opposition, while negotiators are still working on the final technical details that are expected to be released before the year is out.

However, Drewry says there is evidence that supports the argument that free trade deals do encourage heightened trade growth, specifically in the container shipping arena.

One of the most significant FTAs in recent years was the pact between the 10 member states of the Association of Southeast Asian Nations (ASEAN) with China in 2005, Drewry says. In the 10 years before the deal, the annual growth rate for China’s merchandise exports to ASEAN was broadly in line with the rest of the world at 17%. Following the deal, the 10-year CAGR increased to 19% at the time when the annual rate to the rest of the world had dipped to 13%.

ASEAN really started to accelerate beyond the overall trend from 2009 onwards, which suggests it takes a few years after implementation for the trade benefits to really kick-in, according to Drewry.

Similar to the China-ASEAN pact, U.S. trade growth with its FTA partners seems to be gaining momentum as exports and imports to FTA partners are now increasing at a faster pace. Between 2009 and 2014, U.S. exports to FTA countries have grown by 64%, versus 45% for all non-FTAs, while imports from FTAs have expanded by 57% against 47%.

With regards to the containerised trade, the GATT and WTO trade deals and the entry of China into the WTO are widely credited as having accelerated international trade in general and ocean-borne trade in particular, and the available data does again suggest that FTA partners benefit from increased trade at the expense of other economies.

The liberalisation of trade is a growing trend and one that will benefit container shipping companies in the long-run. Drewry says that in the mid-term, investment in shipping and port infrastructure within countries that have expanded their FTA scope is probably prudent.

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