Accounting for around 90% of world trade, the international shipping industry is the backbone of the global economy. But amid political uncertainties, seaborne trade continues to grow. As Brexit beckons and Trump threatens, here are three political policies that we believe could change the face of the shipping industry:
Protectionism: ‘trade doesn’t have to be taxing’
International trade relies on all parties working in harmony. However, tit-for-tat tariffs between two of the world’s largest economies has led to a US-China trade war. Even before his election, President Trump said that China is guilty of unfair trade practices. He believes that a “one-sided” trading relationship exists, which has resulted in the loss of millions of jobs in the US manufacturing industry, not to mention a loss of billions of dollars. In a retaliatory move, President Trump has imposed 25% tariffs on 200bn USD of Chinese exports.
Trade tariffs have caused a stir. Many fear a trade war will trigger countries to rethink where they are importing from and that it could lead to disruptions, raised prices, and less international trade. What’s more, the price of containers going from China to the US surged by more than 100% between December 2017 and December 2018. Peter Sand of BIMCO has said that the dry bulk shipping industry has been most affected by new tariffs laid out by China.
Brexit: deal or no deal?
The portmanteau ‘Brexit’ evokes feelings of uncertainty. The same can be said for future trade relationships between the UK and Europe as it remains unclear whether or not Great Britain will leave the EU without a trade deal. Some ports are already prepared for the worst. It’s clear that Britain is not the maritime superpower that it once was. However, London remains at the heart of commercial maritime affairs and U.K. shipping companies will hope that this can continue.
In the case of a ‘no deal’ Brexit, an issue involving certification could leave around 22,000 seafarers without a valid certificate of competency (CoC)—vital for anyone carrying out certain duties on a ship to bear. Should Britain leave the EU, it would have to apply for ‘third party status’ for UK CoC holders’ certificates to be valid on vessels bearing flags of EU nations. Under EU law, granting third party status to a non-EU member country should take no longer than 18 months.
If a ‘hard Brexit’ should take place, sea trade and transport would have to be rethought. New customs formalities would be applied on goods traded between the two states. What’s more, new routes between the North Sea and the Mediterranean would have to be added to link Ireland with mainland Europe.
Environmental regulations: scrubbing up
Regulatory changes are also a threat to the shipping industry. The IMO’s effort to reduce marine pollution (MARPOL) has led to the global sulfur cap, which will enter into force on 1 January 2020. Shipowners seek compliance, but compliance is costly.
The easiest way to ensure compliance is by switching to low sulfur fuel oil. As it stands, 0.5% sulfur fuel oil can be up to 250 USD more expensive than commonly used heavy fuel oil (HFO). Therefore, many are looking to exhaust scrubbers as an option for compliance.
Restrictions are in place to minimize the number of invasive species exchanged in ballast water. Ballast water management (BWM) is imperative for most ocean-going vessels and deadlines are drawing ever closer. USCG guidelines state that vessels without a compliant system is liable for punishment and can be fined up to 38,175 USD. Compliance with IMO deadlines are more forgiving, but shipping companies are still advised to plan carefully to avoid inevitable bottlenecks at shipyards. The final deadline for retrofits is September 2024.