Michael Behrendt, President of the German Shipowners’ Association, about the state of the shipping industry and the need for international equally rules
Shipping is by far the most important mode of transport for international trade and a prerequisite for globalization. It is[ds_preview] the dynamic driver of the global economy, encouraging the peoples of the world to establish mutually beneficial trade relations that ultimately bring them closer together. But in a persistently strained economic situation, shipowners continue to find it exceedingly difficult to keep their ships afloat and on course, or at least, brace themselves to weather the storm.
The last few years have been enormously challenging for the shipping industry in general. There may be a few encouraging signs, but nobody can predict with certainty when the crisis will finally be over. Due to tonnage overcapacities in many shipping sectors and a rather weak economy in many parts of the world, the supply and demand sides in the maritime transport sector are still out of balance. While liner shipping companies utilize their own capacities, charter owners are suffering from inadequate charter rates. These rate developments have a severe impact on the German market, where traditionally many small and medium sized ship owning companies provide more than 90% of the world’s container tonnage and therefore heavily depend on healthy charter rates. Following the sixth year of the shipping crisis, the financial reserves of many of these ship-owning companies are nearly exhausted.
Increasing financial burdens
With traditional ship financing banks now exercising restraint and, in some cases, even withdrawing entirely from the ship finance business, the situation has become even more precarious for many shipowners. Furthermore, higher future environmental compliance costs will increase the financial burden resting on ship-owning companies even more. These are challenging circumstances for the whole maritime community, which only deepen the financial squeeze for the shipowners and therefore deepen the consequences of the severe crisis. Chances are therefore high that we will see the number of bankruptcies in shipping still rising in the coming months.
»A number of ship-owning companies demonstrated a high degree of resilience«
Nevertheless, quite a number of ship owning companies have demonstrated a high degree of resilience and have prevailed in heavy seas. The numbers of old ships being recycled has risen over the last years, which contributed to reduce worldwide tonnage overcapacity. A tendency
to further engage in alliances, mergers and other forms of cooperation can be seen in the shipping markets, which help owners and charterers to ride out the crisis until markets recover. As for financing newbuilding projects, after the downturn of the so called KG-model on the German shipping market, new concepts are emerging as alternatives to the classic financing model. Around the world the same principle holds true: To gain access to capital markets shipping companies must create transparent structures and implement modern management methods. Many are adopting this philosophy successfully.
The difficult times should not obscure the international shipping industry’s considerable achievements over the past few years, in particular in the field of setting global standards: The entry into force of the Maritime Labour Convention (MLC) on 20 August 2013 is not less than a milestone. MLC is considered the »fourth pillar« of the most important maritime regulations covering international shipping, complementing three major conventions adopted by the International Maritime Organization (IMO): the International Convention for the Safety of Life at Sea (SOLAS); the International Convention for the Prevention of Pollution from Ships (MARPOL); and the International Convention on Standards of Training, Certification and Watchkeeping for Seafarers (STCW).
These three IMO treaties were first adopted in the 1970s and have each been ratified by more than 150 countries, representing more than 99% of world merchant shipping. The MLC, considered as a »bill of rights for seafarers«, significantly and sustainably improves the working and living conditions of more than 1.2mill. seafarers on board ocean-going vessels around the world. Even non-ratifying countries will be unable to avoid adherence to the social standards of the MLC due to a worldwide, closely-knit network of port state controls. Any vessel calling at a port of an MLC signatory country must comply with the social standards set forth by the Maritime Labour Convention. The convention also strengthens the competitiveness of German shipowners who are already offering excellent working conditions on board their vessels. Now the same requirements must be met by those competitors who have been lagging behind.
Basis for anti-piracy measures
We also welcome the newly established solid legal basis in Germany for the on-board deployment of private security firms to ward off pirate attacks. Thanks to a new law, security firms from Germany and all over the world can now be placed on board ships sailing under the German flag. The new national approval process ensures that the security staff on board is highly qualified and reliable. This new regulation sets an example internationally, and it is fortunate that many other countries have meanwhile established appropriate rules for the use of armed security guards to provide the protection that is regrettably still necessary in certain regions of the world.
Piracy continues to be a massive threat to the safety of sea routes, and in particular, to the lives of seafarers. While the situation off Somalia has fortunately improved thanks to naval deployments and the protective measures taken by shipowners, there has been a worrisome increase of brutal pirate attacks against ships off the West African coast. We call upon the international community of nations and the affected coastal states to take appropriate measures to ensure the security of the sea routes for peaceful merchant ships.
What are the perspectives for international shipping? Many shipowners will continue to suffer heavily as long as the charter rates remain inadequate and financing partners are scarce. But there are some initial signs of improvement. The discrepancy between supply and demand is diminishing. The World Trade Organization (WTO) has forecasted a 4.7% increase in trade volume for 2014, and as much as 5.3% for next year. This is good news for the international shipping business. Today’s shipping industry is governed by a worldwide system of regulations and controls. While other industries like the global textile industry, for instance, rely on voluntary commitment only, all core areas of the ocean transport sector are bound by universal rules, a compulsory framework of stringent safety standards, equal training and quality standards for all employees at sea, and comprehensive regulations for the protection of the world climate and the marine environment.
Challenges due to regulations
However, rules for shipping are not only established internationally but also on other levels, national or regional – in particular on the European level. In this environment the industry’s stakeholders face enormous management challenges, especially in terms of investment planning and business process design. Frequently, the exaggerated density and detail of some national and European regulations and special requirements are a direct impediment to the competitiveness of a country and its maritime cluster, with inevitable consequences for employment and value generation.
Ocean vessels are entirely mobile enterprises. European shipowners are competing with market players from all over the world. Therefore we need common-sense international standards which apply equally to all of them and are enforced everywhere in order to achieve a level playing field. This is the only way true progress can be achieved in dealing with current challenges like climate protection. German shipowners run high-quality shipping operations and want to be actively involved in the further development of international standards to secure their economic position in the highly competitive international trade and transport markets.
Michael Behrendt
