More Investment in Maritime Supply Chain Needed to Overcomne Future Crisis

Global Trade Growth turns 'Negative'; UNCTAD

COVID-19, Ukraine war, climate change and geopolitics wreaking havoc on maritime transport and logistics, an increased investment in maritime supply chains is the need of the hour to save the maritime industry, according to the United Nations Conference on Trade and Development (UNCTAD).

In its flagship “Review of Maritime Transport 2022“, the UNCTAD said that ports, shipping fleets and hinterland connections need to be better prepared for future global crises, climate change and the transition to low-carbon energy.

The Review stated that supply chain crisis of the last two years showed that a mismatch between demand and supply of maritime logistics capacity led to a surge in freight rates, congestion, and critical interruptions to global value chains.

As ships transport 80 per cent of the goods globally, with the percentage even higher for most developing countries, the UNCTAD called for an urgent need to boost resilience to shocks that disrupt supply chains, fuel inflation and affect the poorest the most.

“We need to learn from the current supply chain crisis and prepare better for future challenges and transitions. This includes enhancing intermodal infrastructure, fleet renewal and improving port performance and trade facilitation,” UNCTAD Secretary-General Rebeca Grynspansaid. “And we must not delay the decarbonization of shipping,” she added.

STRENGTHEN GLOBAL SUPPLY CHAINS

The UNCTAD in the review states that logistics supply constraints combined with a surge in demand for consumer goods and e-commerce pushed container spot freight rates to five times their pre-pandemic levels in 2021. Reaching a historical peak in early 2022, it sharply increased consumer prices. Though rates dropped since mid-2022, they still remain high for oil and natural gas tanker cargo due to the ongoing energy crisis, the UNCTAD said.

Dry bulk freight rates increased due to the war in Ukraine and related economic measures, as well as the prolonged COVID-19 pandemic and supply chain disruptions. An UNCTAD simulation projects that higher grain prices and dry bulk freight rates can lead to a 1.2% increase in consumer food prices, with higher increases in middle- and low-income countries.

UNCTAD’s technology and logistics division director Shamika N. Sirimanne said, “If there is one thing we have learned from the crisis of the last two years it is that ports and shipping greatly matter for a well-functioning global economy. Higher freight rates have led to surging consumer prices, especially for the most vulnerable. Interrupted supply chains led to lay-offs and food insecurity.”

The UNCTAD called on countries to carefully assess potential changes in shipping demand, develop and upgrade port infrastructure and hinterland connections while involving the private sector. “They should also bolster port connectivity, expand storage and warehousing space and capabilities, minimize labour and equipment shortages,” the review said.

GLOBAL MARITIME TRADE EXPECTED TO SLOW

According to the report, international maritime trade bounced back significantly in 2021 with an estimated growth of 3.2% and overall shipments of 11 billion tons. This is an improvement of 7 percentage points compared to the 3.8% decline in 2020.

For 2022, UNCTAD projects global maritime trade growth to moderate to 1.4%. And for the period 2023-2027, it is expected to expand at an annual average of 2.1%, a slower rate than the previous three-decade average of 3.3%.

MORE INVESTMENT REQUIRED TO CUT CARBON FOOTPRINT

The UNCTAD in the review notes that total carbon emissions from the world maritime fleet increased by 4.7 per cent between 2020 and 2021. The most increase came from container ships, dry bulk and general cargo vessels.

Moreover, the reportalso raised concern over the increasing average age of ships. “By number of ships, the current average age is 21.9 years, and by carrying capacity 11.5 years. Ships are ageing partly due to uncertainty about future technological developments and the most cost-efficient fuels, as well as about changing regulations and carbon prices,” the review said.

Noting that investments in new ships that reduce greenhouse gas emissions would be hampered by surging borrowing costs, a darkened economic outlook and regulatory uncertainties, UNCTAD called for more investment in technical and operational improvements to cut the carbon footprint of maritime transport. These include switching to alternative, low or zero-carbon fuels, optimizing operations, using on-shore electricity when in ports and equipping vessels with energy-efficient technology, it added.

The report also called for a predictable global regulatory framework for investing in decarbonisation and increased support for developing countries in the energy transition. It further underlines the urgent need to adapt ports to the impacts of climate change, especially in the most vulnerable nations.

The UN Organisation also urged the international community to ensure countries that are most negatively affected by climate change – and have contributed the least to its causes – are not negatively affected by climate mitigation efforts in maritime transport.

PROTECTING COMPETITION NEEDED IN THE FACE OF MARKET CONSOLIDATION

Between 1996 and 2022, the top 20 carriers increased their share of container-carrying capacity from 48% to 91%. And over the past five years, the four largest carriers increased their market shares to control more than half of the global capacity, the UNCTAD Review noted.

Moreover, the UNCTAD pointed out that the number of companies that provided services to importers and exporters fell in 110 countries, especially in small island developing states, where at times a duopoly of just two carriers dropped to a monopoly of one.

It also said that market consolidation could lead to market power abuse and higher rates and prices for consumers.

Apart from this, the UNCTAD warned about ship over sizing. “Between 2006 and 2022, the size of the world’s largest container ships more than doubled from 9,380 twenty-foot equivalent unit (TEU) to 23,992 TEU. The size of the largest ship in each country almost tripled, thus ships grew faster than the volumes of cargo to fill them,” it said.

The UN Organisation called on competition and port authorities to work together respond to industry consolidation with measures to protect competition. The report urged stronger international cooperation on cross-border, anticompetitive practices in maritime transport, based on the UN Set of Competition Rules and Principles.

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