We have seen docks and ports full of ships and cruises that navigate the world at all times, day and night. And we have all been amazed at the size and quantity of ships we see on a daily basis. Even the freight liners are very impressive to watch. It looks like it is an industry that will always be there and that for the investors in such industry things will always be a smooth ride. The shipping industry is facing difficult times due to depressed demand, structural over-supply, and a drastic decrease of bulk carriers’ values since 2008. The shipping industry also responds and is shaped by the same mega trends that influence commodities: economic growth, population increase, imbalances of raw material supply and demand, and accelerated technological advancement.
However, there are certain trends that are directly affecting the shipping industry and that will continue to be an issue for the years to come. For the community with in the shipping business it is of most importance to really understand these trends and to be prepared to navigate the consequences when it is necessary.
Environmental regulations exist in almost every industry in the world, but for the shipping industry the impact is a bit higher. These regulations pose a problem or an issue because some of them depend heavily on new technologies that are not yet completely reliable, lack studies to support information or have not yet been universally approved despite the approaching deadlines. One of these examples are the regulations to reduce emissions in designated Sulphur Emissions Control Areas (SECAs), that became tighter since 1 January 2015. In order to cope with these the new regulations, shipping companies have options they can apply to their vessels such as switching to low Sulphur distillates, or to reduce SOx emissions by remodeling the ship and installing technologies which are very expensive to acquire and maintain. Other environmental issues that the shipping industry should be aware of are the regulations concerning ballast water – which poses serious ecological, economic and health problems due to the multitude of marine species they carry- that came into force at the beginning of this year.
In some types of vessels more than in others, oversupply o started in 2008 when the crisis hit and charter rates and vessel valuations dropped. Many years ago emerging markets started to demand more freight services and the industry faced a vessel shortage which meant an increase in the price of freights. The industry reacted to this by building more ships to cover the demand. And when the crisis in 2008 was tangible, prices just went down. This event is still affecting the industry as bigger companies are trying to exploit lower prices and are looking to buy newer and bigger vessels for their fleet, putting in danger smaller companies that are trying to survive.
We have all heard about the piracy problems ships face when crossing near the coasts of Somalia. In 2011 there were 176 incidents involving terrorist attacks in Somalia that included kidnapping of crews, illegal check points and injured or killed people. EU NAVFOR Atalanta is the body dedicated to reduce violence coming from piracy in Somalia and they have done a good job as there were only 2 attacks in 2014 compared to the number from 2011. However, South Africa has become a danger zone and a lot of incidents have been reported in the last year. Ship owners are now using private armies to protect their vessels and the crew when navigating in these danger zones. Private security teams will shape security in the shipping industry in the years to come as piracy is becoming a common crime among the industry.
Vessels and ships nowadays rely in technology more than ever and are open to cyberattacks as any other industry that uses technology and connectivity. According to a Reuters Article “Researchers say they have discovered significant holes in the three key technologies sailors use to navigate: GPS, marine Automatic Identification System (AIS), and a system for viewing digital nautical charts called Electronic Chart Display and Information System (ECDIS)”
Mergers and acquisitions
The shipping industry has always been very fragmented and is now changing towards a scenario where Shareholders and ship owners understand the importance of achieving long term stability, having better market visibility and engaging in alliances to cover operations and capacity. An example is the two biggest commercial shipping companies, Maersk and MSC that entered a ten year deal called 2M.
The shipping industry has been changing and shifting since the crisis in 2008 and it seems like the waters ahead are getting better but will still be hard to navigate.