The Tides of Trade

June 21, 2023 | Nic Solecki, CBDA, Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Map highlighting various countries and relative shipping lanes and shipping choke points. Chart subtitle: As market participants reevaluate risk exposures and seek diversification, certain economies seem well positioned for a more regionalized world. Chart source: ODNI Global Trends 2040, OECD Ocean Shipping and Ship Building 2022. Chart visual description: Countries highlighted in green: United States, Mexico, Chile, Brazil, Argentina, Poland, Turkey, Saudi Arabia, Nigeria, South Africa, India, Indonesia, Malaysia, Vietnam, China. Various ports highlighted in blue. Various shipping lanes plotted with dashed dark blue line. Please contact us for full data set. End chart description. See disclosures at end of document.

As globalization has slowed in recent years, geopolitical and geoeconomic risks have reemerged across global markets. Amid disrupted shipping lanes, upended supply chains, and economic sanctions, all markets — developed or emerging — are vulnerable to some degree. While these risks are nearly impossible to eliminate, they can be managed, and efforts to minimize exposures seem to be driving a trend of regionalization across markets. To help visualize this trend, this week’s chart highlights economies (green) that may benefit from increasing regionalization based on three core constraints.

First, direct geographic access to primary shipping lanes. The OECD estimates that around 90% of all traded goods travel by sea. This suggests that countries with both direct access to shipping lanes (dashed lines) and fewer choke point exposures (blue circles) have competitive advantages over those without access or those vulnerable to bottlenecks. Second, industrial capability. Countries with greater material inputs, labor pools, and facilities inherently have a comparative advantage over those without. Third, foreign exchange purchasing power. Relative to the U.S. dollar or the euro, countries utilizing weak alternative currencies have a comparative advantage in attracting investment and in production costs. This textbook dynamic heavily suggests that denominating costs in relatively weak currencies may be the strongest differentiator between otherwise equal markets.

While there are certainly many other dynamics and constraints at play including multilateral trade agreements and demographics, direct access to shipping lanes, industrial capability, and foreign exchange rates offer three core measures to assess and expand on.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Nic Solecki, CBDA
Research Analyst

Get to Know Nic

The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

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