Price and environmental pressures in the cargo shipping sector – stormy waters ahead?

cargo shipping on stormy seaIn early April a national newspaper published a report on the captain and crew of a cargo ship who had been stranded in the Persian Gulf off the UAE for 18 months without pay or food.

The cargo ship, said the report: “became a floating prison from which he and his 10-man crew could not escape without losing their claim to thousands of dollars in unpaid wages.” The ship’s owners had got into financial difficulties but would not sell the ship because they “would not get a good price”.

This is becoming an all too frequent story and in 2018 alone according to the IMO (International Maritime Organisation) an estimated 791 sailors on 44 ships had been abandoned in this way as a slump in orders led to overcapacity in cargo shipping and took its toll on owners.

Over the last couple of years, a global economic downturn has been gathering pace exacerbated by Trade Wars between the USA and China leading to lower demand on trade routes between Asia, the USA and Europe.

Demand has also been affected by rising costs including for fuel, port handling, insurance and security. These have increased significantly over the past few years, not least due to piracy off Somalia and the recent threat by Iran to block the Straits of Hormuz.

Will 2019 bring any relief for cargo shipping?

Growth in the first 11 months of 2018, was the slowest recorded in the past decade for intra-Asia at 3.8% and the predictions are that European containerised imports may be stuck at a demand growth of no more than 2% for the foreseeable future.

Rates have been relatively steady for a couple of years but, it has been argued, they are barely recovered from a loss-making, low-rate 2016. For some charter cargo shipping companies rates are expected to remain loss making, leading to numbers of idle ships.

While there is some potential for demand from South America and Africa to grow, the outlook is very uncertain.

An added complication is that the IMO has introduced a mandatory cap on the amount of sulphur in ship fuel starting form 2020. Lower sulphur fuels are expected to be more costly than the current Heavy Sulphur Fuel Oil (HSFO).

The increased emphasis on climate change and environmental protection will play an increasingly important role in the cargo shipping sector as it will in other sectors and it will not escape from the geopolitical pressures of trade wars, rising populism and uncertainty over regulation due to these, Brexit and other issues.

It will be some time before there is any relief for the cargo shipping sector.

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