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Economic confrontation of shipping industry

Shipping as one of the world’s most global businesses bodes well at the zenith of world monetary movement. Transportation is viewed as the foundation of globalization and universal exchange, as 90% of the world exchange is helped through boats. Shipping is fundamental to the best possible operation of any nation’s economy and a crucial piece of a countries transport infrastructure.

Today, the shipping industry is still facing a hard period due to macro economic conditions. Most of the shipping entities are struggling to survive these difficult times. There are clear signs of economic recovery in the other sector but on contrary maritime industry has not shown any such indication of recovery form effects of havoc created by the latest economic tsunami. Seaborne trade is uncertain and that some challenging lie ahead for shipping and international seaborne trade. These challenges are further compounded by other developments of some regulations concern in the problem of maritime safety and the protection of marine environment.

The global maritime industry has presently been reeling under the impact of the ongoing economic crisis. It is expected to experience a few years of decline due to the overcapacity of ships, and a substantial reduction of shipment, resulting in a drop in tariffs. Overall, the shipping industry is witnessing a new trend of consolidation. Smaller companies, which are asset heavy, are merging with larger organizations in order to survive these difficult times. Observations indicate that the prospect of considerable improvements in trade volumes before the end of this decade.

Maritime regulations challenges

Most companies in this domain are struggling with the problem of positive cash flow. The major challenges facing the shipping industry not only stem from the economic standpoint, but also arise from strict enforcement of emission regulations and increasing safety and security issues. The Rotterdam rules are expected to replace the old Hague, Hague-Visby, and Hamburg rules. These regulations will provide fresh and fair legal rights to shippers and other cargo-interested parties. Shipping lines and terminal operators will be exposed to new legal claims system for damages, stolen goods, and shipment delays. The criminalization of seafarers is a prominent issue clouding the industry landscape. Seafarers are subjected to severe penalties and punitive charges for acts that have nothing to do with criminal negligence. Moreover the carbon emission is a matter that will ultimately determine the future of the shipping industry. Emission control measures require the fitting of detectors and making expensive changes in the machinery deployed on board. This exerts additional pressure on the shipping organizations that are already struggling.

Costs escalation challenges

The rising costs of necessary materials could negatively affect industry competitiveness. The increasing prices may lead to higher costs of operation. Higher prices of fuel and parts as well as poor market conditions could cause serious issues in many global shipping companies. The Malaysian domestic shipping industry is already experiencing difficulties because of these higher costs.These issues may appear as great challenges, but the shipping industry is resilient and is sure overcome these and future challenges that comes its way.

Security challenges

The great number of disturbing incidents of piracy and armed robbery against ships – particularly off the Somali coast and in the Gulf of Aden – have become an increasing concern not only for the maritime industry that is heavily affected by these incidents, but also for international organizations, including the International Maritime Organization (IMO) and the United Nations. It also includes environment related developments include IMO’s continued commitment to making progress in a number of areas, including in relation to reducing emissions of greenhouses gases from international shipping and in its work towards the establishment of a relevant global regime.

 

Climates challenges

Understanding the implications for trade and development especially for developing countries needed to be enhanced and relevant studies should be carried out. Climate change mitigation in maritime transport and the need to adapt to climate change impacts posed a particular challenge for geographically disadvantaged landlocked countries with significant population, especially for their already volatile trade and development prospects. While the going remains challenging, there are positive signs that portend hope for the future. Freight rates are heading up on a strengthening global economy. The supply overhang of ships is less severe than earlier feared because of order cancellations and deferments, and slow steaming. The improved sentiment is trickling down to other sectors of the maritime industry. As we face the challenges in the year ahead, we see some encouraging signs of the world economy bottoming out and progress on a slow road to recovery.

Technological challenges

Technological developments particularly in communications and information provide better opportunities for knowledge management to increase transparency and accessibility to information. Care should, however, be taken with regard to possible negative consequences that technology could bring. When adopting technological developments, enhance maritime safety, security efficiency and protection of the environment should be taken into consideration. Moreover proper application of technology in information management and provide enhanced access to that information by the shipping industry should be adopted.

Epilogue

It is the call of the day that port authorities and operators must optimize utilization of existing capacities rather than building new ones and dealing with excessive idle capacities. Ramping up infrastructure capabilities to cater to regional needs will eventually lead to profitable operations. This applies to shipping companies that should strategically analyze the profit earned on each route, and reduce the number of services on the route where trade volumes are severely down. It is important for the survival in the shipping market to maintain the flexibility required to take advantage of any emerging opportunities and to act on available market intelligence.

The author, Mr. Nazir Ahmed Shaikh, is a freelance columnist and an academician by profession. Currently he is associated with SZABIST as Registrar and could be reached at nazir.ahmed@szabist.edu.pk.

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