Shipping Industry – Needs more Agility to Overcome the Current Challenges

By Rajiv Theodore
Maritime shipping has been one of the world’s oldest industries dating back to tens of thousands of years. The fact remains that about two-third of the earth’s surface is water filled and it is this obvious certitude that always made shipping the natural mode of transport for goods and services. It must be recalled that it was the pivot for the rapid growth of globalisation boosting commerce and trade across the globe. The United Nations Conference Trade and Development (UNCTAD) says that around 80% of global trade by volume and over 70% of international trade by value are carried by sea, thus earning it the sobriquet, the backbone of the industry. Fast forward to Covid times, the industry is facing its share of significant repercussions just like any other industry which has been hit by the pandemic induced recession. It is yet to recover fully. The pandemic has left longer-term questions unanswered on the ability of the global trading system to withstand shocks and India on its part will again have to take a decision on how its infrastructure and shipping capacity can be augmented to cushion such shocks.

The shipping scenario of recent times looks something like this. China is the largest exporter globally and at the start of the pandemic, manufacturing came to a standstill due to strict lockdowns. Many Chinese companies forfeited on their purchase contracts causing a considerable decline in the import of raw material. Compounded by worker shortage — for unloading, handling and transporting –many containers were diverted to other ports, which incurred substantial congestion surcharges. Manufactured and finished goods were lying at various Chinese ports without being shipped or transported worldwide causing sluggish freight movement in and out of China.

Multiple shipping liners worldwide started seeing a decline in their monthly revenues, forecasting a further reduction in the coming months. As a result of allayed trade activity, empty containers in places like America, being one of the largest importers, were not getting picked up despite being much needed in Asia. With the decline in cases in China, the country recovered quickly, and China resumed its exports in March and started shipping its filled containers. However, once these containers reached their destinations, social distancing and covid restrictions amongst dockworkers caused slower shipping processing time. As a result, there was a backlog of claimed cargo at the ports in the import nations like Europe and North America, further aggravating the container shortage issue.

Another factor that contributed to dismal performance of shipping industry has been the pandemic induced scenarios– work from home , education, fitness etc. This increased the demand for desks, chairs, electronic equipment, fitness equipment, etc. Despite the skyrocketing prices, many companies were willing to export their products which led to escalating shipping costs. These challenges only heightened in March 2021, when the Suez Canal got blocked by the grounding of the Ever-Given shipping vessel. This blockage added to the entire supply chain disruption as it caused major traffic jams and delays, blocking over 300 ships. Further, re-routing around the Cape of Good Hope, the southern tip of Africa all contributed to delays.

This shipping crisis has escalated worsening the situation for Indian SMEs who are navigating their businesses amidst the pandemic. The lack of containers increases the logistics costs and affects the SME’s capabilities to complete the orders, causing a delay in the payment. The Suez Canal crisis also exacerbated the challenges. As a result, Indian cargo deliveries will be delayed both ways. Even if the Suez Canal operates entirely, the backlog that has already been created will take a substantial amount of time to clear up. Owing to this catastrophe,12 major ports in India witnessed a considerable dip in cargo traffic, thereby massively affecting MSMEs.

According to the Indian Transport and Logistics News website, the cost of shipping a ‘container’ from Kochi to Europe’s Rotterdam port has increased by 873% between March 2020 and August 2021. A container is a metal box, either 20 feet or 40 feet long, and is the standard way to ship goods across the globe. Freight rates have jumped: Mundra-Hamburg by 759%, Kochi-New York by 650% and Mundra-Baltimore by 311% . The logjam has sent shipping costs to record highs. The Shanghai Containerized Freight Index, a closely followed gauge measuring the cost of shipping from Chinese ports, soared 449% in early October compared with the same period two years ago.

But, it hasn’t been bad for everyone. The cascade of problems has resulted in extraordinary earnings for shipping giants like Denmark’s Maersk, France’s CMA CGM, Germany’s Hapag-Lloyd and China’s Cosco, which were on track to reap a decade’s worth of gross profit in just one year. Drewry, a maritime research consultancy, estimates container shipping lines could collectively take in up to $100 billion in net earnings by the end of 2021, tripling a forecast from March and putting the companies in the same league as corporate behemoths like Apple. Sleek they are not, but the ships, loaded and lumbering across the seas, are a reminder that old world ways are indispensable to the new world order.

Entire maritime operations from shipyards to carriers of bulk commodities have been affected. Reduction in workforce and fall in demands has pushed freight rates lower, additional restrictions by countries at the ports like ban on crew changes, is disrupting global supply chains. Goods in transit are being delayed, rerouted, or discharged short of their final destination due to containment measures. As different countries are in various stages of lockdowns, the issue of port congestion with cargo and containers lying unattended has surfaced. Offshore drilling in many countries have also been affected due to the crisis. Related industries like fisheries and seafood will also suffer consequences, explains Captain Chilikaatil Rajan who was in global maritime business for the past 40 years. Shipping is the life blood of the global economy and without it, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible but, since coronavirus has started, it has disrupted shipping which has affected global trade, Capt Rajan added.

Chief Engineer Rollyson Stephens explained it this way–carriers, ports and shippers were all taken by surprise by the pandemic while the shortage of empty containers was unprecedented as there were no contingency plans. He hoped– ‘’this crisis, serious though it is, will ease, most probably by early next year.’’ Yes, it will take time before this disruption can be absorbed across the maritime supply chain and the system resumes smoother operations. On a brighter side, Chinese manufacturers have pitched in producing new containers as well as ships are seeing a surge in orders.