Foreign-Exchange Earnings in the Shipping Sector
Anders Ejstrup and Caroline Bindslev, Statistics
INTRODUCTION AND SUMMARY
Sea freight has been of increasing significance to Denmark's exports and imports in recent years. It is now the second-largest export sector after manufacturing industry. Advantageous tax rules combined with favourable cyclical developments, especially the expansion of world trade, paved the way for growth in the sea freight sector in the years prior to the financial crisis. Compared with e.g. manufacturing industry, shipping is less labour-intensive, and wage competitiveness therefore has less impact on sea freight exports than on e.g. manufactured exports1.
This article focuses on the shipping sector's foreign-exchange earnings, i.e. revenue and expenditure denominated in foreign exchange. The figures are not directly reflected in the Danish balance of payments. Sea freight revenue and expenditure are distributed on several items in the balance of payments. This article provides a comprehensive overview.
Danish shipping companies exported sea freight services in excess of kr. 190 billion in 2008. The shipping sector's foreign-exchange earnings for Denmark are calculated by deducting shipping expenditure incurred abroad. In 2008 the shipping companies earned kr. 11 billion in foreign exchange.
The shipping companies' foreign-exchange earnings for Denmark are estimated at kr. 4 billion in 2009. The global economic slowdown has also affected the shipping sector, as fewer goods and less fuel were transported around the world in 2009.
The shipping companies' foreign-exchange expenditure consists mainly of chartering of ships with or without crews, and fuel (bunkering), amounting to kr. 122 billion and kr. 38 billion, respectively, in 2008. Wages, provisioning and repairs are minor foreign-exchange expenditure items for the shipping companies.
balance-of-payments statistics and sea freight2
In general terms, the current-account balance is an expression of the difference between the value of exports and imports of goods and services, wages and investment income and net current transfers to abroad3.
The development in the Danish current-account surplus from 1997 onwards shows an increasing contribution from the services item, cf. Chart 1. A considerable reduction can be seen in the latter half of 2009, however.
| Items on denmark's balance of payments, net | Chart 1 |
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| Note: Calculated on a 12-month accumulated basis. Source: Statistics Denmark. |
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The growing contribution from services up to 2008 is primarily attributable to Denmark's net exports, i.e. exports minus imports, of sea freight, cf. Chart 2.
| balance-of-payments services – subitems, net | Chart 2 |
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| Note: "Other transport" includes air transport. "Other services" includes communication, information, etc., procurement of goods, consultation, etc. and financial and cultural services. New sources and methodologies are applied from January 2005. Source: Statistics Denmark. |
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Net current revenue from sea freight peaked in 2008 with net income for Denmark of kr. 58 billion.
The growth in net revenue is driven by increased exports, cf. Chart 3. The shift in level for imports and exports in 1999 and 2005 can be explained by A.P. Møller Mærsk's acquisition of Sealand, a US container division, in 1999 and the Dutch/British container shipping company P&O Nedlloyd in 2005. Danish exports of sea freight increased from around kr. 50 billion in 1997 to more than kr. 190 billion in 2008, making sea freight Denmark's second-largest export sector, cf. Chart 4. From 2005, the Danish shipping sector's exports of "Sea freight" is exceeded only by "Manufactured goods".
| exports and imports of sea freight | Chart 3 |
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| Anm.: Annual observations, with the exception of the 2009 figures, which are preliminary, compiled on a quarterly basis and shown as a broken line. The shift in level in 1999 is attributable to A.P. Møller Mærsk's acquisition of Sealand, a US container division. New sources and methodologies are applied from January 2005. A.P. Møller Mærsk acquired P&O Nedlloyd that same year. Source: Statistics Denmark. |
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| Danish exports of goods and services | Chart 4 |
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| Anm.: Quarterly observations. "Agriculture, etc.", "Energy" and "Manufactured goods" are calculated on the basis of the foreign-trade statistics SITC categorisation as SITC 0-2 and 4, SITC 3 and SITC 5-9, respectively. From 2007, Statistics Denmark changes from SITC, Rev. 3 to SITC, Rev. 4. "Other services" is not included. "Sea freight" for 2009 is compiled on a quarterly basis; otherwise annual observations are used. From 1997 to 2004, the data series for "Goods and services, total" is calculated according to BET6, annual observations, and from 2005 to 2009 according to BOP3, quarterly observations. Source: Statistics Denmark. |
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The economic slowdown has also affected the shipping sector. Generally falling demand for goods transport, excess capacity and the weaker dollar contributed to the decline in Danish exports of sea freight in 2009. Nevertheless, the Danish shipping sector's exports of sea freight amounted to several hundred billions in 2009 or 18 per cent of total Danish exports of goods and services.
Denmark has several large shipping companies with different competences, including Maersk Line, the world's largest container shipping company. Danish container freight accounts for approximately 60 per cent of the total Danish merchant fleet capacity. Denmark's share of the global merchant fleet was 1.3 per cent in 2009, cf. Box 1.
| the danish and international merchant fleets in 2009 | Box 1 |
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The Danish merchant fleet totalled 547 ships in October 2009. 404 of these sailed under Danish colours, cf. Table 1. The Danish shipping sector's most important markets are the EU, East Asia (Japan), China, including Hong Kong, and the USA, taking 27, 15, 15 and 12 per cent of gross freight, respectively. The Danish merchant fleet is dominated by container freight, accounting for approximately 60 per cent of the total Danish fleet. The main part (63 per cent) is in liner traffic, i.e. regular traffic between specific ports. The Danish dominance in the container shipping market is attributable to Maersk Line, the world's largest container shipping company, cf. Table 2. The average age of the Danish merchant fleet was 7.2 years in October 2009. In comparison, the global merchant fleet averages 11.4 years. Danish shipping companies employed 30,000 people in 2009. |
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| global merchant fleet figures 2009 | Table 1 |
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Tonnage (GT) |
Danish share (per cent) |
Ships sailing under Danish colours |
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| Total | 815,369 |
1.3 |
404 |
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| Tankers |
295.181 |
1.1 |
135 |
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| Bulk carriers, etc. (dry cargo/bulk cargo) | 247,390 |
0.1 |
4 |
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| Container ships | 142,473 |
4.2 |
83 |
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| General cargo ships (small amounts of dry cargo/mixed cargo) | 90,889 |
0.4 |
85 |
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| Other ships | 39,436 |
1.4 |
97 |
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| Note: Tonnage is measured as 1,000 GT (gross tonnage). Tonnage is the international term for the cubic capacity of all closed compartments of a ship. "Other ships" sailing under Danish colours comprises passenger ships and ferries (83), reefer ships (7) and cargo ferries (Ro-Ro ships) (7). Source: Danish Shipowners' Association (2009b). |
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| the world's seven largest container shipping companies in 2009 | Table 2 |
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Country |
Number of ships |
TEU capacity |
Share of global capacity (per cent) |
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| Total | World |
11,162 |
15,327,034 |
- |
| Maersk Line | Denmark |
454 |
1,766,506 |
11.5 |
| Mediterranean Shipping Co SA | Switzerland |
388 |
1,487,474 |
9.7 |
| CMA CGM | France |
249 |
898,146 |
5.9 |
| Evergreen Marine Corp. | China (Taiwan) |
160 |
588,895 |
3.8 |
| APL Ltd | USA |
126 |
500,900 |
3.3 |
| Hapag-Lloyd AG | Germany |
132 |
491,669 |
3.2 |
| COSCON | China |
140 |
478,656 |
3.1 |
| Note: TEU (Twenty feet Equivalent Unit) is an international container measurement converted into units with a length of 20 feet and calculated in 1,000 TEU. Source: Danish Maritime Authority (2009). |
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| Source:Danish Shipowners' Association (2009b). | ||||
Denmark's sea freight imports are also increasing. This should be viewed in the light of the fact that several Danish shipping companies are increasingly chartering (leasing) foreign ships with or without crews. When Danish shipping companies charter ships abroad for shipping operations, this appears in the statistics as Danish imports of sea freight.
Shipping companies chartering ships abroad contribute to inflating both imports and exports of sea freight.
Sea freight is viewed in an import and export perspective above. When calculating the shipping companies' foreign-exchange earnings, it is not enough to consider sea freight exports, however. Relevant shipping expenditure incurred abroad must be deducted, and other income abroad, e.g. from foreign subsidiaries, must be included.
Foreign-Exchange Earnings in the Shipping Sector4
Foreign-exchange earnings in the shipping sector are calculated by compiling the shipping companies' foreign-exchange revenue and expenditure. The shipping companies' foreign-exchange revenue is achieved mainly by selling sea freight services to foreign companies, while a minor share is attributable to investment income and the sale of ships. Foreign-exchange expenditure, on the other hand, is distributed on many different items, cf. Box 2.
| balance of payments and shipping companies | Box 2 |
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The balance of payments can be seen as an account between Denmark and abroad that records net transactions with abroad. The balance of payments comprises four main components: goods, services, investment income1 and wages and current transfers. The shipping companies' foreign-exchange revenue is achieved mainly by selling sea freight services, while a minor share is attributable to investment income and the sale of ships. Foreign-exchange expenditure, on the other hand, is distributed on many different items, cf. Chart 5. Fuel and provisioning purchased abroad, among other items, are entered under goods. Services include sea freight-related services such as repairs in foreign ports and chartering of ships abroad. Wages and investment income represent wages for foreign crews and investment income between Danish shipping companies and abroad and between foreign shipping companies and Danish shipping companies. They are specified in Table 3. |
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| the shipping companies' foreign-exchange revenue and expenditure | Chart 5 |
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| Anm.: Arrows pointing away from the ship indicate expenditure outflows; arrows pointing towards the ship indicate revenue inflows. Source: Danmarks Nationalbank. |
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| 1Investment income records the return on Denmark's external assets and liabilities. Investment income includes interest, dividend and reinvested profits. Danish shipping companies pay investment income to abroad and receive investment income from their foreign subsidiaries. | |||||
| Foreign-Exchange Earnings in the Shipping Sector | Table 3 |
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| Kr. billion | 2005 |
2006 |
2007 |
2008 |
2009 estimate |
| Revenue | |||||
| Goods | |||||
| Goods, including the sale of ships | N/A |
N/A |
N/A |
N/A |
N/A |
| Services | |||||
| Exports of sea freight1 | 119.2 |
148 |
160.4 |
176.6 |
129 |
| Wages and investment income | |||||
| Interest and dividend from Danish-owned foreign subsidiaries | 2.9 |
3.8 |
3.3 |
3.5 |
3 |
| Expenditure | |||||
| Goods | |||||
| Bunkering in foreign ports | -14.5 |
-24.1 |
-26.9 |
-38.0 |
-23 |
| Provisioning in foreign ports | -0.8 |
-1.2 |
-1.0 |
-0.9 |
-1 |
| Goods, including the purchase and sale of ships (net expenditure) | -1.0 |
1.1 |
0.0 |
-1.1 |
-1 |
| Services | |||||
| Repairs in foreign ports | -0.9 |
-1.2 |
-1.1 |
-1.0 |
-1 |
| Chartering of ships with or without crews2 | -77.6 |
-106.6 |
-116.7 |
-122.0 |
-100 |
| Wages and investment income | |||||
| Wages for foreign crews | -0.4 |
-0.4 |
-0.6 |
-0.5 |
0 |
| Interest and dividend paid to abroad | -1.9 |
-3.8 |
-6.0 |
-5.2 |
-2 |
| Shipping companies' foreign-exchange earnings (revenue minus expenditure) | 25.0 |
15.6 |
11.4 |
11.4 |
4 |
| Note: Note: Net figures are entered on the expenditure side, i.e. gross figures on the revenue side are entered as N/A. The table contains data and special calculations from Statistics Denmark. The figures are based on data broken down by sector from the foreign-exchange statistics for goods and services, wage statistics and Danmarks Nationalbank's compilation of investment income. The figures have been adjusted for CIF/FOB before being broken down by sector. It should be noted that the 2009 figures include estimates. The bunkering item has been reduced by 40 per cent due to falling oil prices and activity. The remaining estimated items have been set at 2005 level. Reservation is made for rounding of figures. Source: Statistics Denmark and Danmarks Nationalbank. |
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| 1Exports of sea freight do not include "Supporting and auxiliary transport services", which primarily covers expenditure for ship brokers, etc. Accordingly, the figures are not directly comparable with total exports of sea freight. 2Chartering of ships with or without crews comprises imports of sea freight, excluding "Supporting and auxiliary transport services" and operational leasing, the former relating primarily to chartering of foreign ships with crews by Danish shipping companies, and the latter relating to chartering without crews. |
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A significant sea freight expenditure item is chartering of foreign ships with or without crews by Danish shipping companies5. The costs incurred increased from kr. 78 billion in 2005 to kr. 122 billion in 2008. Expenditure in 2009 is estimated at kr. 100 billion. Another considerable expenditure item is fuel (bunkering) for ships in foreign ports, which is included in foreign-trade statistics as imports of goods. Fuel expenditure doubled in the period 2005-08, from kr. 15 billion to kr. 38 billion. This should be viewed in the light of A.P. Møller Mærsk's acquisition of P&O Nedlloyd in 2005 and the increase in the price of oil from around 42 dollars per barrel in January 2005 to 145 dollars in July 2008 when oil prices peaked. The remaining expenditure, e.g. for provisioning and repairs of ships in foreign ports, was relatively stable in the period under review, averaging approximately kr. 2 billion.
All in all, Danish shipping companies in 2008 earned around kr. 11 billion in foreign exchange, adjusted for shipping operation expenditure, cf. Chart 6. Based on preliminary figures, the shipping companies' foreign-exchange earnings in 2009 are estimated at kr. 4 billion.
| danish shipping companies' foreign-exchange earnings | Chart 6 |
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| Note: 2009 figures include estimates. Source: Statistics Denmark and Danmarks Nationalbank. |
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Overall, the shipping companies' foreign-exchange earnings declined by more than half in the period 2005-08, from kr. 25 billion in 2005 to kr. 11 billion in 2008. This reflects the increase in the shipping companies' chartering expenditure in step with export growth, as well as rising bunkering expenditure due to higher oil prices. The sea freight sector is generally characterised by fluctuating revenue and expenditure, as freight rates, exchange rates and oil prices may vary substantially from year to year.
Literature
Beier, Niels C. and Erik Haller Pedersen (2005), Sea Freight and the Danish Economy, Danmarks Nationalbank, Monetary Review, 4th Quarter.
Danish Shipowners' Association (2009a), Danish Shipping, April.
Danish Shipowners' Association (2009b), Shipping Figures, November (in Danish only).
Statistics Denmark (2007), Foreign trade – Goods and Services, November (in Danish only).
Statistics Denmark (2008), Foreign Trade in Goods and Services – Sources and Methods, November (in Danish only).
Statistics Denmark (2009), 10-year Statistical Overview, August (in Danish only).
Kristensen, Kamilla, Johanne Dinesen Riishøj and Jonas Sørensen (2010), Manufactured Exports and Wage Competitiveness, Danmarks Nationalbank, Monetary Review, 1st Quarter.
Pedersen, Erik Haller (2003), The Balance of Payments – from Sustained Deficit to Sound Surplus, Danmarks Nationalbank, Monetary Review, 2nd Quarter.
Danish Maritime Authority (2009), Facts about Shipping, November (in Danish only).
Sørensen, Rewal Schmidt (1999), Method Manual – Foreign Trade Statistics, Statistics Denmark, September (in Danish only).
Sørensen, Rewal Schmidt (2001), Denmark's Foreign Economy, Handelshøjskolens Forlag, 6th edition (in Danish only).
[1] Kristensen, Riishøj and Sørensen (2010).
[2] This article equates sea freight with shipping.
[3] See Pedersen (2003) for further details.
[4]Access to sector data relating to sea freight activities abroad is essential when compiling foreign-exchange earnings in the shipping sector. Such data has been supplied by Statistics Denmark.
[5] Chartering of foreign ships with or without crews by Danish shipping companies comprises imports of sea freight, excluding "Supporting and auxiliary transport services" and operational leasing. The former relates to chartering of foreign ships with crews (time charter) and several shipping companies' joint chartering of ships (pools), while the latter relates to chartering of ships without crews and other unmanned equipment.
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