Last week, Reuters circulated the Suez Canal Traffic statistics as their Chart of the Week with a corresponding commentary suggesting that the world GDP, correlated with the Suez traffic, maybe set for a nosedive because number of ships crossing the canal is showing a declining year-on-year growth.
“Unsurprisingly, perhaps, the trends in global GDP growth tend to mirror those in traffic transiting the Suez canal; it is logical that trade volumes would flag during periods of contraction or sluggish growth, as is most vividly illustrated by the close correlation between the two indicators at the height of the financial crisis from late 2008 through 2009,” wrote Reuters’ Scott Barber.
Barber does point that the “Suez indicator isn’t a perfect one” because it captures only 8% of the trade but, says Barber, “capturing 8% of global trade is enough to at least provide an indicator of what’s afoot.”
When it comes to the Suez indicator, however, 8% is not the only problem with it.
Sure that the percent change is a capture of volatility and not the absolute trend, so when much of everything cliff-dived in 2008, it is very easy to see correlation between many different data, but, the volatility chart above shows that the correlation between vessels passing through the Suez has stopped following the global GDP.
Assuming that the global GDP will re-correlate by sinking lower makes it for a nice read and a great post for sensationalist blogs, but if we dig little more into what is causing the decoupling on the chart we may have some strong doubts about Suez traffic as an indicator of global growth.
As the data above indicates, traffic through the Suez has been rather flat since January 2009 with occasional seasonal dips during Jan-Feb period.
What the traffic data does not capture, however, is the tonnage these vessels are moving.
Since 2000, the tonnage per vessel has been steadily increasing. This means that more stuff is being shipped though the Suez with less number of ships.
Starting in 2010, moreover, the per-vessel tonnage jumped, in particular, because the Suez authorities have increased the maximum amount of cargo ships can carry through the canal.
If we compare the global GDP absolute trend and the tons-per-vessel data, there is a much greater correlation then simply looking at the volatility. So, despite the decoupling in the volatility (Reuters graph) for the 2010 to present, the tons-per-vessel versus global GDP is correlated at a very high 94.4%, meaning that the tonnage Suez is moving shows trendline growth and therefore does not necessarily signal dire global trade ahead.
Finally, the data on shipping is a backward indicator whose actual trends appear only later. This means that the cargo that goes through Suez reflects orders made 2-3 months prior (backward indicator) but that these orders officially enter government trade books only after they’ve passed through the Suez. Such data is maybe a good indicator of what may appear on the official balance of trade ledgers, particularly for the European states, but does not necessarily capture forward looking trends on cross-border trade trends.
Finally, as Vale’s so-called ValeMax super tanker fleet show, the amount of cargo each ship is capable of moving is set to increase and this will increasingly skew the ship traffic data.