THE SHIP­PING AS­SO­CI­A­TION OF T&T

These are un­set­tling times for the world econ­o­my and by ex­ten­sion for the ship­ping in­dus­try. With the trans­porta­tion of car­go by sea un­der­pin­ning the world-trad­ing sys­tem, the con­trac­tion in glob­al eco­nom­ic ac­tiv­i­ty has re­sult­ed in the es­ca­la­tion of chal­lenges faced by an in­her­ent­ly and his­tor­i­cal­ly volatile in­dus­try. Some of the chal­lenges that have been mak­ing head­lines are worth ex­am­in­ing.

Over­ca­pac­i­ty

"Maer­sk warns of over­ca­pac­i­ty"

"Al­pha­lin­er says over­ca­pac­i­ty to ac­cel­er­ate"

"Huge over­ca­pac­i­ty hurt­ing ship­ping"

These are some of the dai­ly news head­lines that tes­ti­fy to a ma­jor con­di­tion plagu­ing mar­itime trans­porta­tion: over­ca­pac­i­ty.

This is the over­sup­ply of ship­ping ves­sels, in com­par­i­son to the de­mand for same. The ma­jor dri­ver of over­ca­pac­i­ty has been the an­tic­i­pa­tion of con­tin­u­ing ex­pan­sion in trade and new ves­sels be­ing or­dered to meet ex­pect­ed de­mand. The con­tain­er-ship­ping seg­ment has been hard­est it by over­ca­pac­i­ty, and is strug­gling to re­cov­er from a fren­zy of new ship or­ders in 2008. Around 240 con­tain­er ships were de­liv­ered from March 2007 to 2009 alone. This led to a sit­u­a­tion where there were 500 idle con­tain­er ships in Jan­u­ary 2010. A large num­ber of new ves­sels are ex­pect­ed to en­ter the world fleets in 2012/13. Ma­jor play­ers have at­tempt­ed to ad­dress the over­sup­ply in the mar­ket by re­tir­ing old­er ves­sels, de­lay­ing or­ders, or re­duc­ing ca­pac­i­ty on key routes.

Oth­ers mea­sures adopt­ed by car­ri­ers to ab­sorb ca­pac­i­ty have been:

I. Re­duc­ing ves­sel speed and tak­ing longer routes have all had lim­it­ed im­pact.

This year, es­ti­mates are that ship­ping de­mand will in­crease by 5.5 per cent, while ves­sel ca­pac­i­ty will grow by 12 per cent. In­dus­try ex­perts pre­dict that the over­sup­ply of ves­sel ca­pac­i­ty could per­sist for sev­er­al more years, some an­tic­i­pat­ing that it will per­sist as far out as 2016/17. New ves­sels have al­so been built for high­er ef­fi­cien­cies, to re­place old­er, less ef­fi­cient ves­sels. Un­for­tu­nate­ly, some of the old­er ves­sels have not been scrapped, be­cause of the dis­in­cen­tive of the low scrap­ping val­ue, but rather sold off, adding more ton­nage to an al­ready over­sup­plied mar­ket.

II. Freight rates

The price that a car­ri­er, that is, a shipown­er or char­ter­er charges for trans­port­ing car­go is known as the freight rate. In gen­er­al, freight rates are af­fect­ed by the de­mand for the goods be­ing car­ried by the sup­ply of avail­able ves­sels car­ry­ing the goods. In ad­di­tion to the fluc­tu­a­tions of sup­ply and de­mand, the bar­gain­ing pow­er of the ship­per, the num­ber of com­peti­tors and the avail­abil­i­ty of al­ter­na­tive trans­port modes al­so af­fect price. Freight rates are one of the most volatile com­po­nents for car­ri­ers in the mar­itime in­dus­try. Wild­ly fluc­tu­at­ing freight rates have meant that the ma­jor car­ri­ers have reg­u­lar­ly re­port­ed neg­a­tive op­er­at­ing prof­its since the cri­sis hit the in­dus­try in the sec­ond half of 2008. While freight rates have been trend­ing up since the late 2011, the pe­ri­od 2010-2011 saw some dra­mat­ic de­clines in freight rates. Con­tin­u­ing over­ca­pac­i­ty is still af­fect­ing car­ri­ers' abil­i­ty to im­ple­ment and main­tain sig­nif­i­cant­ly high­er freight rates.

III. High fu­el prices

The price of fu­el is a ma­jor cost dri­ver in mar­itime trans­porta­tion. Fu­el costs can ac­count for as much as 60 per cent of a ship's op­er­at­ing costs. There­fore, a rise in oil prices will un­doubt­ed­ly in­crease the trans­port bill for car­ri­ers, and has the po­ten­tial to sig­nif­i­cant­ly un­der­mine the trade. A re­cent study by UNC­TAD has shown that a ten per cent in­crease in oil prices would raise the cost of ship­ping a con­tain­er by around 1.9 per cent to 3.6 per cent, while a sim­i­lar in­crease in oil prices would raise the cost of ship­ping one tonne of iron ore and one tonne of crude oil would in­crease by up to 10.5 per cent and 2.8 per cent, re­spec­tive­ly. De­spite the over­ca­pac­i­ty in the mar­ket, high fu­el prices con­tin­ue to act as an im­pe­tus for the or­der of new de­sign, more fu­el-ef­fi­cient ships. This seem­ing con­tra­dic­tion is at the heart of the volatil­i­ty that char­ac­teris­es this in­dus­try.

Pira­cy

Pira­cy at sea has emerged as a ma­jor in­ter­na­tion­al mar­itime se­cu­ri­ty con­cern. Ac­cord­ing to a lead­ing mar­itime pub­li­ca­tion, in the first five months of 2011 alone, there was a to­tal of 211 at­tacks world­wide, with 24 suc­cess­ful hi­jack­ings. The ma­jor­i­ty of these events have been re­port­ed off the coast of So­ma­lia, with 139 in­ci­dents in that area, 21 hi­jack­ings, 362 peo­ple tak­en hostage and 7 killed. In 2010, in­ci­dents of ac­tu­al or at­tempt­ed acts of pira­cy and armed rob­bery against ships re­port­ed to the In­ter­na­tion­al Mar­itime Or­ga­ni­za­tion (IMO) to­talled 489, an in­crease of 83 (20.4 per cent) over the fig­ure for 2009. These re­ports made 2010 the fourth suc­ces­sive year that the num­ber of re­port­ed in­ci­dents in­creased. The ge­o­graph­i­cal reach of pira­cy has al­so ex­pand­ed, due to hi­jack­ers us­ing larg­er, so-called "moth­er ships." Even though the ma­jor­i­ty of in­ci­dents in 2010 oc­curred off East Africa, at­tacks in the In­di­an Ocean and the Ara­bi­an Sea al­so in­creased. More­over, the num­ber of at­tacks in the South Chi­na Sea in­creased sig­nif­i­cant­ly, along with a small­er rise in in­ci­dents in South Amer­i­ca and the Caribbean. As a con­se­quence, there has been a move­ment in the in­dus­try to­wards us­ing pri­vate armed guards on board ships, as a means of pro­tec­tion against pi­rate at­tacks. Oth­er con­se­quences of this pro­lif­er­a­tion of pira­cy have been in­creased in­sur­ance rates, longer voy­age routes to avoid pira­cy zones, and ves­sels car­ry­ing armed ves­sel es­corts in high-risk ar­eas. The im­pact of pira­cy is not on­ly felt in eco­nom­ic terms, but al­so af­fects the lives of sea­far­ers and their fam­i­lies.

Labour short­ages

Key ar­eas where labour short­ages ex­ist to sup­port the mar­itime in­dus­try are:

Mar­itime at­tor­neys

Sur­vey­ors

Sea­far­ers

While the ship plays a pri­ma­ry role in the trade, with­out per­son­nel to run the ves­sel, the ship­ping trade would grind to a halt. The short­age of sea­far­ers has caused the cost of labour for shipown­ers to in­crease dra­mat­i­cal­ly and like­wise, the over­all op­er­at­ing cost of ships. This short­age al­so has the po­ten­tial to com­pro­mise the qual­i­ty of sea­far­ers em­ployed and by ex­ten­sion, the safe­ty of ves­sels.

It is now a world­wide con­cern forc­ing the IMO to launch sev­er­al in­ter­na­tion­al cam­paigns aimed at at­tract­ing young peo­ple to sea­far­ing ca­reers.

In­ter­na­tion­al­ly and, to an even greater ex­tent, in the lo­cal in­dus­try, it can be ar­gued that in­vest­ment in ed­u­ca­tion in the sec­tor has not been up to par with the growth of the in­dus­try. Ac­cord­ing to Cross World Ma­rine, in 2010, the world­wide sup­ply of sea­far­ers was es­ti­mat­ed at around 624,000 of­fi­cers, while the cur­rent de­mand is re­port­ed­ly 637,000. The re­sult sug­gests a sit­u­a­tion of ap­prox­i­mate bal­ance de­mand and sup­ply rat­ing with a two per cent short­age over­all. Out­side of the over­ar­ch­ing in­ter­na­tion­al chal­lenges iden­ti­fied in the pre­ced­ing, there are unique chal­lenges that pre­vail both re­gion­al­ly and lo­cal­ly. These chal­lenges will be in­tro­duced here but dis­cussed more ex­ten­sive­ly in an­oth­er fea­ture.

Key re­gion­al chal­lenges

Tech­nol­o­gy and in­sti­tu­tions have emerged and grown while the hu­man re­sources have not "trained-up" to keep pace with these de­vel­op­ments-and this refers to both the pub­lic and pri­vate sec­tor, al­though it is more pro­nounced in the pub­lic sec­tor

Stan­dard­i­s­a­tion of cus­toms pro­ce­dures and fail­ure to har­monise ac­cord­ing to WCO stan­dards

Some of the im­ped­i­ments to the ad­vance­ment and op­ti­mal func­tion­ing of the lo­cal mar­itime trans­port in­dus­try ex­ist part­ly on the hu­man re­source side, as well as with re­gards to a lack in prop­er pol­i­cy for­ma­tion

Lo­cal chal­lenges

In­ad­e­quate­ly trained port-side and sea-side work­ers

Labour and labour pro­duc­tiv­i­ty con­tin­ues to pose a sig­nif­i­cant chal­lenge

On a pol­i­cy lev­el, the in­dus­try suf­fers from a gen­er­al lack of po­lit­i­cal dri­ve to not on­ly keep up with emerg­ing in­ter­na­tion­al trends but to im­prove the na­tion's re­spons­es to them

Woe­ful­ly in­ad­e­quate in­vest­ments in port in­fra­struc­ture

Out­dat­ed and dis­con­nect­ed leg­is­la­tion, which nei­ther sup­ports the growth of the in­dus­try, nor the ef­fec­tive fa­cil­i­ta­tion of trade