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POSITIVE OUTLOOK BUT PROTECTIONISM WILL DISRUPT SEABORNE TRADE

Wednesday, October 3, 2018 

Seaborne trade expanded by 4% in 2017, the fastest growth in five years, but a trend to implement protectionist policies could disrupt global trade, warns UNCTAD, the United Nations Conference on Trade and Development.

Speaking at the launch of the 2018 edition of the UNCTAD Review of Maritime Transport, at the Global Maritime Forum’s Annual Summit in Hong Kong, UNCTAD Secretary-General Mukhisa Kituyi said: “While the prospects for seaborne trade are positive, these are threatened by the outbreak of trade wars and increased inward-looking policies. Escalating protectionism and tit-for-tat tariff battles will potentially disrupt the global trading system which underpins demand for maritime transport.”

The warning comes amidst an improved balance between demand and supply that has lifted shipping rates to boost earnings and profits. Freight-rate levels improved significantly in 2017 (except in the tanker market), supported by stronger global demand, more manageable fleet capacity growth and overall healthier market conditions.

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.
Liner shipping consolidation, technological advances, and climate change policy are key drivers of change in global shipping, the report says.

Consolidation activity in liner shipping continued unabated: the liner shipping industry witnessed further consolidation through mergers and acquisitions and global alliance restructuring.

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 utilisation 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.

Shamika N. Sirimanne, Director of UNCTAD’s Division on Technology and Logistics, said: “There is a need to assess the implications of mergers and alliances and of vertical integration within the industry, and to address any potential negative effects. This will require the commitment of all relevant parties, notably national competition authorities, container lines, shippers and ports.”

The report furthers that uncertainty remains 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. The climate change agenda also remains a priority.

The shipping industry must reduce greenhouse gas emissions, the report says, welcoming among international efforts the April 2018 adoption by the International Maritime Organization (IMO) of an initial strategy aimed at reducing by at least half the total annual emissions from ships by 2050 compared to 2008.

The IMO strategy identifies potential short-, mid- and long-term further measures with possible timelines, and their impacts on States, highlighting the need to pay attention to the needs of developing countries, especially small island developing States and least developed countries.

Depending on the outcome of negotiations and the specific design of any future instrument, it will be important to assessthe related potential implications for carriers, shippers, operating and transport costs as well as the cost of trade. It will also be important to assess the benefits associated with these measures, including market-based instruments in shipping and how these could be directed to address the maritime transport and logistics challenges facing developing countries, the report says.

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