Cyprus Mail
Business Cyprus

Shipping at the heart of economic development

By Costas Apostolides, Economist

THE Maritime Cyprus conference opens in Limassol on Sunday at a time when world shipping faces many challenges including repercussions of the international economic and financial crisis, the implications on the volume of trade and shifts in trade to Asia, technological change, environmental regulations, piracy and changes in the earth’s energy balance with the advent of natural gas and fracking. All these issues will be addressed at the conference, with an impressive line-up of speakers from the International Maritime Organization, the European Commission, International Chamber of Shipping, the American Bureau of Shipping, International Transport Workers Federation, Deutsche Bank and other major speakers with international standing. Given that Cyprus is a major shipping nation, the conference attracts international participation and also relates to the emerging situation in Cyprus shipping.
Over the period 2002 to 2007 world shipping gained from the growth of international trade, and Cyprus shipping benefitted from the development of the island as a major centre for ship management. Since 2008 the financial crisis and the recessions in Europe and the United States affected world trade negatively, with serious repercussions on shipping, which carries more than 90 per cent of international trade. To make things worse, shipping was affected at a time when the world supply of ships increased, and the combined effect was that pressure was placed on freight charges as freight demand, banks and financial markets worldwide were under pressure.
In order to put shipping into perspective the World Shipping Council estimates that “global seaborne trade” carries over $10 trillion worth of goods a year, with container ships accounting for 52 per cent of that, followed by tankers at 22 per cent, cargo at 20 per cent and dry bulk at six per cent. Consequently shipping is crucial for the world economy, largely because it is the most cost efficient way of transporting goods. Nevertheless shipping is in competition with rail and pipelines mainly across the EuroAsia land mass, as well as with electricity transmission lines for energy transfer. Despite these developments shipping has maintained its dominant position in international trade.
It is particularly significant that Maritime Cyprus includes a session in which experts will analyse the current trends in shipping. At present the situation is somewhat confused, but recently the German state owned HSH Nordbank announced that as a result of the increase in ship capacity faster than demand, “freight and charter rates, together with ship values, remained at a historically low level”. Norbank ruled out a recovery before the end of 2014. Given this situation the analysis of trends at the conference should provide a clearer indication as to what is going on and provide a more reliable basis for planning ahead.
Most of the focus in the media has been on container traffic in consumer and other goods, but not all shipping sectors are affected in the same way. For example oil shipments are expected to be affected by European environmental regulations for reduced emissions from energy systems particularly in electricity production, the promotion of natural gas as a more environmentally friendly alternative fuel, the trend to solar energy and other renewable energy sources, and the expansion of natural gas pipelines and cross border trade in electricity. The most immediate effect could be, however, the anticipated reduction of oil imports to the United States arising from fracking of natural gas, and the development of the United States as an exporter of Liquefied Natural Gas. In August the Economist front page led with oil as “Yesterday’s Fuel”, but admitted that the International Energy Agency still predicts that oil demand will increase largely because of lifestyle changes in China and India as incomes increase. One point of interest to Cyprus given its newfound natural gas resources is that ships could also be powered by natural gas, an issue that is to be considered in the conference. Whatever the case, the demand for LNG tankers and gas pipelines is bound to increase.
The hope in the shipping industry has been that demand in Asia would continue to grow thereby making up for the recession and stagnation in Europe, and the economic uncertainty in the United States. Some uncertainty has also developed with respect to Asia, however, as the Indian economy has slowed down considerably, and in China the growth rate has moderated somewhat, though is still growing at over seven per cent. Despite these uncertainties the shipping rates have stabilised in some sectors, and the Cyprus shipping companies have reported a more stable commercial environment.
Among the challenges facing the shipping sector are the adoption of the IMO’s concept of a “sustainable maritime transportation system” which will be presented at Maritime Cyprus by Secretary General of the International Maritime Organization Koji Sekimizu. On World Maritime Day (September 27) he announced that “it seems inevitable that shipping must be at the heart of sustainable development, and that shipping must ensure its own development is sustainable. The growth of the world’s economy will not be possible without sustainable growth in shipping and the entire maritime sector”. The concept of sustainability in shipping lists the following overall goals or “imperatives”:
1. Safety culture and environmental stewardship
2. Education and training and support for seafarers
3. Energy efficiency and ship-port interface
4. Energy supply for ships
5. Maritime traffic support and advisory systems
6. Technical cooperation
7. New Technology and innovation
8. Improved finance, liability and insurance systems
9. Ocean governance
Measures for improvements in these imperatives in shipping are necessary but they will increase some costs and reduce others (i.e. fuel costs), but the main problem is that they will be more difficult to implement under the present commercial conditions. Regardless of these difficulties, progress has already been made by the recession itself as old ships have been sent to the scrap yards, and there is a higher proportion of new, modern, fuel-efficient ships that have the benefited from the latest technology. So progress is being made even in the midst of an uncertain economic climate.

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