Opinion: The global shipping industry: A sea of transformation
Published: 05:07 PM,Jul 13,2024 | EDITED : 12:07 PM,Jul 17,2024
Despite its complex challenges, the shipping industry remains the fulcrum of international trade and the global economy. Image for illustration only.
The fruits and vegetables we consume, the clothes we wear, the cars we drive, and many other goods and products we consume daily travel many nautical miles to come into our hands. Today, 90% of the world’s goods are transported by sea, making shipping a practical option for various goods and products. Despite its complex challenges, the shipping industry remains the fulcrum of international trade and the global economy.
The international shipping industry is transforming; the Covid-19 pandemic, disruptions in global logistics, changing trade patterns, geo-political tensions, ongoing wars in Europe and the Middle East, changing globalization patterns, decarbonization, and emerging technologies like artificial intelligence (AI), the Internet of Things (IoT), and blockchain are reshaping the contours of the shipping industry towards a new sustainable future.
International seaborne trade volume contracted by 0.4% in 2022, a trend that began in 2020 with the onset of the Covid-19 pandemic. Several factors, including consumer spending, Covid-19 constraints, and weaker economic growth, have contributed to this slow growth.
However, geopolitical tensions have significantly impacted the global shipping industry, posing unique challenges and making stakeholders more aware of the industry's complexities.
The international shipping industry also had to navigate the demand and supply situations of the carriers. While carriers experienced a peak in 2021 and 2022 with record profits, global economic tensions and elevating inflationary pressures are now leading to a sharp decline in demand. This could lead to an oversupply worldwide, triggering intense competition and affecting the container industry's profitability.
The Ukraine conflict led to the closure of the Black Sea ports, which caused transportation delays and a substantial decline in Ukraine's exports, especially grains and food exports, resulting in global price hikes. The Israel-Palestine war has further affected the shipping industry, posing challenges to crucial shipping routes, including the Suez Canal and the Strait of Hormuz.
Now, firms must reroute the vessels through the Cape of Good Hope. The number of container ships diverted from the Red Sea to the Cape of Good Hope has doubled since 2023. The Strait of Hormuz is a strategic route with approximately 20 million barrels, or 20% of the world's oil shipping, passing through this strait daily. The Panama Canal has experienced historically low water levels since 2023 due to a severe drought. As a result, the daily vessel transit was restricted to 24 compared to 34 in regular conditions.
This affected global trade, and vessels were routed through the longer Cape of Good Hope. The situation has improved in 2024, showing signs of recovery with a gradual increase in daily transit. Some trade diversifications and shifts in the geography of trade result in new importers and exporters. These changes are cyclic, induced by war and tension, and do not represent structural trade pattern shifts.
BRICS has expanded, and new members, such as the UAE, Saudi Arabia, Ethiopia, Egypt, and Argentina, have joined. This development is expected to introduce significant shifts in international trading routes, and the BRICS will now present more challenges and opportunities for the global shipping industry. It will open new alternative payment systems and support regional infrastructure development. The China Plus One strategy adopted by many companies will establish a manufacturing presence in these regions and influence the decision on the global shipping route.
There have also been changes in the shipping companies' alliance structures. The Ocean Alliance will be operational from 2025 until 2032, making it the world’s largest alliance, holding 29.10% of the market share. Another major alliance is that of Gemini Corporation (Maersk and Hapag Lloyd), with 21.8% of the market share. These developments show how shipping competitive forces adapt to escalating tensions and supply chain disruptions.
The new India-Middle East-Europe (IME) corridor, launched on September 10, 2023, during the G-20 summit in New Delhi, is a game-changer. It is a multimodal network of railways, shipping routes, and digital infrastructure designed to create an effective trade route between India, the Middle East, and Europe. Presently, transit time via traditional shipping routes takes 30–40 days. This corridor is expected to reduce the transit time significantly to as little as ten days. This will reduce shipping and logistics costs, making the trade more cost-competitive, and challenge the dominance of the Suez Canal and traditional shipping checkpoints, altering the strategic prominence of many ports and logistics. More importantly, it will develop the relationship between India, the Middle East, and Europe, reshaping the region's power dynamics and underscoring the corridor's strategic importance.
These multifaceted trends are poised to significantly expand and reshape global shipping into uncharted waters in 2024 and beyond. The geography of shipping and trade is shifting primarily due to geopolitical tension, energy security goals, and low-carbon energy sources. As further escalating tensions and economic fallout cast dark clouds, the global shipping industry adjusts operations and routes to mitigate heightened risks. The industry's remarkable resilience in maneuvering challenges is a testament to its stability and strength.
The international shipping industry is transforming; the Covid-19 pandemic, disruptions in global logistics, changing trade patterns, geo-political tensions, ongoing wars in Europe and the Middle East, changing globalization patterns, decarbonization, and emerging technologies like artificial intelligence (AI), the Internet of Things (IoT), and blockchain are reshaping the contours of the shipping industry towards a new sustainable future.
International seaborne trade volume contracted by 0.4% in 2022, a trend that began in 2020 with the onset of the Covid-19 pandemic. Several factors, including consumer spending, Covid-19 constraints, and weaker economic growth, have contributed to this slow growth.
However, geopolitical tensions have significantly impacted the global shipping industry, posing unique challenges and making stakeholders more aware of the industry's complexities.
The international shipping industry also had to navigate the demand and supply situations of the carriers. While carriers experienced a peak in 2021 and 2022 with record profits, global economic tensions and elevating inflationary pressures are now leading to a sharp decline in demand. This could lead to an oversupply worldwide, triggering intense competition and affecting the container industry's profitability.
The Ukraine conflict led to the closure of the Black Sea ports, which caused transportation delays and a substantial decline in Ukraine's exports, especially grains and food exports, resulting in global price hikes. The Israel-Palestine war has further affected the shipping industry, posing challenges to crucial shipping routes, including the Suez Canal and the Strait of Hormuz.
Now, firms must reroute the vessels through the Cape of Good Hope. The number of container ships diverted from the Red Sea to the Cape of Good Hope has doubled since 2023. The Strait of Hormuz is a strategic route with approximately 20 million barrels, or 20% of the world's oil shipping, passing through this strait daily. The Panama Canal has experienced historically low water levels since 2023 due to a severe drought. As a result, the daily vessel transit was restricted to 24 compared to 34 in regular conditions.
This affected global trade, and vessels were routed through the longer Cape of Good Hope. The situation has improved in 2024, showing signs of recovery with a gradual increase in daily transit. Some trade diversifications and shifts in the geography of trade result in new importers and exporters. These changes are cyclic, induced by war and tension, and do not represent structural trade pattern shifts.
BRICS has expanded, and new members, such as the UAE, Saudi Arabia, Ethiopia, Egypt, and Argentina, have joined. This development is expected to introduce significant shifts in international trading routes, and the BRICS will now present more challenges and opportunities for the global shipping industry. It will open new alternative payment systems and support regional infrastructure development. The China Plus One strategy adopted by many companies will establish a manufacturing presence in these regions and influence the decision on the global shipping route.
There have also been changes in the shipping companies' alliance structures. The Ocean Alliance will be operational from 2025 until 2032, making it the world’s largest alliance, holding 29.10% of the market share. Another major alliance is that of Gemini Corporation (Maersk and Hapag Lloyd), with 21.8% of the market share. These developments show how shipping competitive forces adapt to escalating tensions and supply chain disruptions.
The new India-Middle East-Europe (IME) corridor, launched on September 10, 2023, during the G-20 summit in New Delhi, is a game-changer. It is a multimodal network of railways, shipping routes, and digital infrastructure designed to create an effective trade route between India, the Middle East, and Europe. Presently, transit time via traditional shipping routes takes 30–40 days. This corridor is expected to reduce the transit time significantly to as little as ten days. This will reduce shipping and logistics costs, making the trade more cost-competitive, and challenge the dominance of the Suez Canal and traditional shipping checkpoints, altering the strategic prominence of many ports and logistics. More importantly, it will develop the relationship between India, the Middle East, and Europe, reshaping the region's power dynamics and underscoring the corridor's strategic importance.
These multifaceted trends are poised to significantly expand and reshape global shipping into uncharted waters in 2024 and beyond. The geography of shipping and trade is shifting primarily due to geopolitical tension, energy security goals, and low-carbon energy sources. As further escalating tensions and economic fallout cast dark clouds, the global shipping industry adjusts operations and routes to mitigate heightened risks. The industry's remarkable resilience in maneuvering challenges is a testament to its stability and strength.