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Seaborne trade expanded by a healthy 4% in 2017, the fastest growth in five years, with a similar growth forecast this year, according to UNCTAD’s Review of Maritime Transport 2018.
Volumes across all segments are set to grow in 2018, with containerized and dry bulk commodities expected to record the fastest growth at the expense of tanker volumes.
Healthy trade growth aside, the 2018 edition of the report also looked at the key opportunities and challenges faced by the shipping industry, and here are the 7 trends to be weary of:
Growing protectionism
First, on the demand side, the uncertainty arising from wide-ranging geopolitical, economic, and trade policy risks, as well as some structural shifts, have a negative impact on maritime trade. Of immediate concern are inward-looking policies and rising protectionist sentiment that could undermine global economic growth, restrict trade growth and shift trading patterns.
“While the prospects for seaborne trade are positive, these are threatened by the outbreak of trade wars and increased inward-looking policies,” UNCTAD Secretary-General Mukhisa Kituyi said. “Escalating protectionism and tit-for-tat tariff battles will potentially disrupt the global trading system which underpins demand for maritime transport.”
The warning comes against a background of an improved balance between demand and supply that has lifted shipping rates to boost earnings and profits.
Supply-demand improvements, namely in the container and dry bulk shipping segments, are expected to continue in 2018. Freight rates may benefit accordingly, although supply-side capacity management and deployment remain key. UNCTAD projects an average annual growth rate in total volumes of 3.8% up to 2023.
On the supply side, after five years of decelerating growth, 2017 saw a small pick-up in world fleet expansion. During the year, a total of 42 million gross tons were added to global tonnage, equivalent to a modest 3.3% growth rate.
Technological advances
Second on the list are the continued unfolding of digitalization and e-commerce and the implementation of the Belt and Road Initiative. These bear major implications for shipping and maritime trade.
Technological advances such as blockchain applications, cargo and vessel tracking, autonomous ships, and the Internet of Things, hold opportunities for the global shipping industry.
However, there is still uncertainty within the maritime transport industry regarding possible safety, security and cybersecurity incidents, as well as concern about negative effects on the jobs of seafarers, most of whom come from developing countries.
Excessive capacity
Third, from the supply-side perspective, overly optimistic carriers competing for market share may order excessive new capacity, thereby leading to worsened shipping market conditions. This, in turn, will upset the supply and demand balance and have repercussions on freight-rate levels and volatility, transport costs and earnings.
Consolidation
The fourth trend to be aware of is the liner shipping consolidation through mergers and alliances has been on the rise in recent years in response to lower demand levels and oversupplied shipping capacity dominated by mega container ships. The implication for competition levels, the potential for market power abuse by large shipping lines and the related impact on smaller players remain a concern.
Competition authorities and regulators, as well as other relevant entities such as UNCTAD, need to remain vigilant.
As of January 2018, the Top 15 shipping lines accounted for 70.3% of all capacity. Their share has increased further with the completion of the operational integration of the new mergers in 2018, with the Top 10 shipping lines controlling almost 70% of fleet capacity as of June 2018.
Three global liner shipping alliances dominate capacity deployed on the three major East-West container routes, collectively accounting for 93% of deployed capacity. Alliance members continue to compete on price while operational efficiency and capacity utilization gains are helping to maintain low freight-rate levels. By joining forces and forming alliances, carriers have strengthened their bargaining power vis-à-vis the seaports when negotiating port calls and terminal operations.
Growing consolidation can reinforce market power, potentially leading to decreased supply and service quality, and higher prices. Some of these negative outcomes may already be in effect. For example, in 2017–2018, the number of operators decreased in several small island developing States and structurally weak developing countries.
Vessel sizes and alliances
The fifth trend is alliance restructuring and larger vessel deployment, which are also redefining the relationship between ports and container shipping lines. Competition authorities and maritime transport regulators should also analyse the impact of market concentration and alliance deployment on the relationship between ports and carriers, UNCTAD said.
Increases in the size of vessels and the rise of mega-alliances have heightened the requirements for ports to adapt. While liner shipping networks seem to have benefited from efficiency gains arising from consolidation and alliance restructuring, for ports, the benefits did not evolve at the same pace. This dynamic is further complicated by the shipping lines often being involved in port operations which in turn could redefine approaches to terminal concessions.
The report says that global ports and terminals need to track and measure performance as port performance metrics enable sound strategic port planning, investment and decision-making.
Determining the value of shipping
Sixth, the value of shipping can no longer be determined by scale alone. The ability of the sector to leverage relevant technological advances is becoming increasingly important.
Environmental agenda
Finally, efforts to curb the carbon footprint and improve the environmental performance of international shipping remain high on the international agenda. When in comes to the implementation, owners will need to consider carefully what compliance strategy to choose.
via WMN