A Book Report

By Jock O’Connell

During a flight from San Francisco to Paris via Amsterdam early this month, I had ample time to read a new book on global maritime trade that has been eliciting a generally generous response from a number of prominent shipping industry leaders and editorial pundits.

The book is “Trade War: Containers Don’t Lie, Navigating the Bluster”. The author is Lori Ann LaRocco, who has written previously on maritime trade, most recently in “Dynasties of the Sea: The Untold Story Stories of the Postwar Shipping Pioneers” (2018). When not authoring works about the ocean shipping business, her day-job is senior editor for guests at CNBC Business News.

“Trade War” is a slender volume featuring an attractive compendium of colorful charts and tables. For a book, the statistics cited are surprisingly up to date, with trade data drawn from the first half of this year. Yet, the chief effect of the proliferation of graphics is to cut the book’s actual text to fewer than 100 pages of prose that, alas, too often betrays the hasty editorial shortcuts needed to get the volume into print. Indeed, paragraphs often appear disjointedly at odd intervals in the narrative, and some passages and direct quotes do double or even triple service throughout the book.

There is also a bit of false advertising involved. In a foreword by Arturo Sarukhan, a former Mexican ambassador to the U.S., readers are promised “a compelling, timely, and well-documented case for the need to defend our trade flows, our joint platforms and integrated supply chains, and the openness of our economies and, dare I say, our societies…”

If Ms. LaRocco fulfilled that promise in the draft Ambassador Sarukhan was sent, the relevant chapters appear to have been left out of the final edition. Instead, the book remains largely a recitation of statistics amidst a summary of the various policy moves over the past couple of years that have brought the global economy to its current state of malaise. In that sense, the book is less an analysis than a useful compendium of information…up to a point.

Just about as my KLM flight began to level off over Lake Tahoe, I came across a couple of statements that brought my seatback to its full upright position.

First was this bold contention: “There is a direct correlation between the growth of global trade and the expansion of ports around the world.” Oh my, I thought, I paid $29.50 plus tax for this level of expert insight?

Suddenly, watching a Dutch police procedural on the seatback screen in front of me became a more compelling option.

But I persevered, only then to be met with this preposterously false claim: “With 90 percent of the world’s economy moved by maritime transport, the ocean highway is the best way for anyone to monitor the flow of trade and gauge the status of trade talks.” [Emphasis added.]

I had to reread that passage two or three times to ensure it wasn’t just a rehashing of that ancient chestnut about 90 percent of the world’s trade being waterborne. That’s a claim that’s been reliably cited since at least the days of Titus Livy, the first century CE Roman historian, and is probably no more precise then as it is now. Still, you see it all the time, usually in the works of young journalists trying to persuade their editors that articles on maritime logistics merit the electronic equivalent of above-the-fold placement.

One problem I’ve long had with this factoid is no one ever bothers to reveal the metric being used. Even studies from presumably reputable organizations staffed by presumably reputable economists -- the United Nations’ International Maritime Organization immediately comes to mind -- repeat the claim without indicating what metric is being employed. Is it simply the share of metric tons of transborder trade or is a more dynamic measure like kilometer-tons the basis of the calculation? The UN’s Conference on Trade and Development lately hedged that 90% number by reporting that oceanborne carries “over 80% of global merchandise trade by volume.”

One thing 90% of X isn’t is a share of the value of goods being traded across national boundaries. And it certainly isn’t 90% of the world’s economy.

But Ms. LaRocco wasn’t writing about maritime’s share of internationally traded goods. She was laying claim to a much more exalted role for the shipping industry. As she goes on to argue: “The volume of trade provides the tea leaves that tell the story of the health of a country’s economy based on its imports and exports.” That’s a very strange observation, especially from someone being billed on her current book tour as an authority on international trade.

Some countries are simply more insular than others or less dependent on trade. Austria and Australia are both wealthy nations. Yet foreign trade accounts for well over twice as much of Austria’s economy than it does of Australia’s. To be sure, one is much more geographically isolated than the other, but their respective volumes of trade seems to have had little impact on their economic wellbeing. By contrast, consider Hungary and Austria, which border each other and share a major commercial waterway, the occasionally blue Danube. Austria’s per capita GDP is 80% higher than Hungary’s, even though Hungary is significantly (80%) more dependent on trade than its former Habsburg partner. Ms. LaRocco would be wiser to acknowledge that there are more factors at play than imports and exports in telling the story of a nation’s economic development.

Similarly, one is inclined to wonder, is a nation with a prodigious trade deficit therefore weaker economically than one with a huge trade surplus? The United States has not had an annual merchandise trade surplus since 1975 and yet currently enjoys its longest period of sustained economic growth in recent history. Meanwhile, Germany’s impressive merchandise trade surplus is not preventing its policymakers from dithering their way into a recession. Ms. LaRocco, I’m afraid, wouldn’t be the first soothsayer to misread the tea leaves.

If anything, her contention that 90 percent of the world’s economy is moved by maritime transport seems strikingly reminiscent of those famously fatuous economic impact studies which make most of indirect or tertiary effects -- like the one a few years ago that attested that the Ports of Seattle and Tacoma alone accounted for two-thirds of Washington State’s economy. Hello, Boeing, Microsoft, Amazon, Starbucks, Costco, Nordstrom?

Unlike goods traded commercially, a nation’s economic size is customarily measured in terms of gross domestic product – the value of all goods and services produced in each country. In the United States, GDP in 2018 totaled $20.58 trillion and has been up another 2% or so this year. Last year, U.S. foreign merchandise trade totaled $4.24 trillion. 90 percent? Not even close.

A major error Ms. LaRocco makes is in ignoring the extent to which services generate the great majority of GDP in developed economies like the United States and much of Europe. The World Bank estimates that in 2018 services contributed fully 77.4% to America’s GDP. The shares for the United Kingdom were 70.5%; for Germany, 61.5%; for France, 70.3%; for Japan 69.1%. Even for export-driven economies like China and Vietnam, services still represented 52.2% and 41.2% of their economies, respectively. And services, it’s safe to say, are seldom trafficked by sea.

Now let’s concede that her statement was an instance of editorial excess, one uncorrected by editorial sobriety. Perhaps she was thinking in terms similar to what the folks down at the intercontinental missile range meant when they boasted about their latest rocket’s “throw-weight”. Surely when the commodities being traded include billions of barrels of oil and millions of tons of grains and ores, maritime shipping obviously does the heavy lifting. And, if you’re transporting such goods halfway around the world, those kilometer-ton numbers add up fairly quickly. So, while it is reasonable to conclude that a very high percentage of the sheer weight of goods being moved around the world are transported by ships and barges, that is not what Ms. LaRocco wrote.

It’s also the case that most countries trade heavily with their immediate neighbors. The United States, for example, conducts nearly 30% of its merchandise trade with Canada and Mexico. According to the Bureau of Transportation Statistics, North American transborder trade in 2018 amounted to 573,782,196 metric tons. Of that, 33.7% was carried on ships or barges. However, when recalculated to reflect the dollar value of the goods being traded, ships and barges accounted for only 7.9% of North American transborder trade last year.

Germany is the world’s third most prodigious exporter, after China and the U.S. Fully 35% of its trade involved countries it directly borders. Eurostat, the European Union data collection agency, observes that E.U. members have traditionally traded goods more with other member states than with countries outside the E.U. So, while it is true that barges move a great deal of intra-European trade on the continent’s river systems and that the bulk of trade between the continent and the United Kingdom, Ireland, Malta, and Cyprus is waterborne, it’s also true that rail, trucks, and pipelines carry much more than a sliver of intra-European trade.

Ms. LaRocco’s focus on maritime trade and especially on containerized trade also overlooks how much of the world’s trade goes nowhere near a waterfront. While commodities with relatively low weight-to-value ratios such as scrap paper and metals find seaborne modes of conveyance economically advantageous, much of the world’s trade in high-technology electronics gear, pharmaceuticals, and other goods with high value-to-weight ratios travel internationally the way most of us do – in an airplane. Last year, 27.5% of America’s $4.21 trillion in foreign trade went by aircraft. Nearly thirty percent (29.7%) of U.S. exports were airborne.

In some regions, airports play a greater role in international trade than do seaports. In the three Customs Districts that encompass California, 42.4% of the merchandise export trade moves by air. In the San Francisco Customs District, fully 56.0% of exports last year were airlifted to their destinations around the world and 40.7% of the district’s imports arrived by air.

So, were it not for her impetuous efforts to elevate the stature of maritime shipping to a level even higher than it justly merits and her dubious contention that tracking imports and exports offers a unique method for assessing national economies, I might have recommended this book to anyone seeking more than a colorful collection of charts and graphs about an industry that brings so much cheer during the holiday season.

Best wishes to all!

The commentary, views, and opinions expressed by Jock O’Connell are his own and do not reflect the views or positions of the Pacific Merchant Shipping Association. PMSA does not endorse, support, or make any representations regarding the content provided by any third party commentator.