The global maritime sector could have done without the year 2009. Such is the view of those associated with the business of shipping. I and many other analysts had forecast considerable chaos last year, and the markets lived up to that sad prediction, especially in container shipping and car carriers, two sectors that cater primarily to the transportation of manufactured goods. Shipping journals were rife with stories of bankruptcies and buyouts, some of which were true, others wild speculation. The carriers in deepest trouble included revered names such as Hapag-Lloyd, CMA CGM, and Zim-even DP World, the parent company of Dubai Ports, the global-terminal operator that during the past decade grew meteorically.
Predictably, the major theme during the year was (and continues to be) financial stability. A number of carriers were in dire straits because of declining asset values and an unrelenting global credit crunch. Ship owners who had grown accustomed to a strong annual tonnage demand increase (6.3 percent until 2008) continued their ordering spree, anticipating further global trade growth. Given overbooked shipyards' multi-year delay in delivering new ships, many owners who had only paid the initial 20 percent down, hoping to raise the rest as the delivery date came nearer, found themselves in a tight corner. Indeed, the combination of the first gross-domestic-product reduction for developed economies since World War II, a 12 percent drop in world trade, and a gargantuan shipbuilding order book created ideal conditions for a disastrous 2009. However, the maritime sector did eventually pull off a miraculous escape once again, and the results in select markets showed signs of life by year's end. Overall, confidence in the maritime sector has stabilized, though it remains inherently fragile, as noted by the global maritime consulting company Moore Stephens.
Strong Developing Nations
Many developed and even some developing countries initiated a variety of macroeconomic triggers that successfully held water and avoided a prolonged contraction. Despite a steep drop in global commerce and economic activity in general, world markets are now emerging from the trough, albeit at snail's pace. The robust developing-market economies, China and India in particular, have played stellar roles in this outcome.
The Chinese economy came under increased scrutiny last year, as most analysts debated whether the Middle Kingdom could prolong its role as the epicenter of global maritime commerce. The slowing of its economic engine continued in 2009, yet the nation recovered to stabilize at around 8.5 percent GDP growth, spearheading an Asia-centric economic recovery and stemming confidence erosion in maritime circles.
The Chinese demand for raw materials increased substantially in the latter half of 2009; unsurprisingly, the dry-bulk shipping market turned out to be the least affected last year. In contrast, a precipitous decline in Chinese exports, caused by a downturn of consumption in developed countries, impacted the fortunes of container operators. They reported major losses and laid up about 600 ships, in addition to canceling or delaying a number of new-building orders.
So, in all 2009 was a year meant for those with nerves of steel and deep pockets. It was one that most aficionados would like to forget as quickly as possible. Most other stories in the industry lack the pizzazz of this high-profile macroeconomic juggernaut, but they are covered here for the benefit of maritime connoisseurs.
Dry Bulk Market
This sector began 2009 as the most distressed shipping market. Large, deep-draft capesize bulkers earned barely $5,000 per day, a precipitous 95 percent drop from mid-2008 rates. By mid-2009, rates recovered from the doldrums primarily because of strong Chinese raw-material imports, ending the year with capesizes earning an average of $39,000 per day with an increase in average sailing distances.
The supply imbalance is expected to worsen until 2013, with a significant infusion of new dry-bulk tonnage at an annual growth rate of 9.5 percent, reports Lloyd's Register-Fairplay Research. Increased momentum in recycling older tonnage and a major boost in the world demand for dry bulk commodities are required to offset the projected increase in supply.
The tanker market entered 2009 after peaking in 2008 and faced the first decline in oil demand in recent times. Although the 5 percent drop in oil trades impacted vessel-use levels, the tanker market also fared respectably in 2009. While the lifeline for dry-bulk carriers came from China, what saved the tanker market was the employment of several large tankers for storage purposes. Reportedly, one-twentieth of the world tanker capacity was used for storage in 2009.
However, market conditions show worsening conditions in early 2010. A new very large crude carrier (VLCC) bought in 2008 for $153 million must earn $65,700 per day for 25 years to make the expected 10 percent normal profit that keeps the investment committed. But because of prolonged oversupply in this market, the time charter rates are expected to be half that level for the immediate future.
A McQuilling Services report on tanker markets, citing excess supply and lower rates, projects that owners will lose $2 million per vessel over the next five years (2010-14). A key factor in how the market shapes up is the fate of single-hull tankers, which constitute 17 percent of the current VLCC fleet. Many of these ships are relatively young. The European Union's and South Korea's push for accelerated phase-out of these tankers, and also the recent Chinese and Indian ban on their use for foreign commerce, will eliminate some of the market imbalance. But the current order book, consisting of about 900 tankers above 27,500 deadweight, offers little room for comfort.
There was a 10 percent decline from 2008 levels in container movements in general, although in the Far East-U.S. route it was down 15.3 percent. Furthermore, the container freight rates in major east-west trade routes dropped 26.2 percent in 2009. Compared with 2007, the peak year for these movements, containerized U.S. imports went down by 55,000 20-foot-equivalent units (TEUs), according to Alphaliner.
There was an 8 percent decline in tonnage demand for containerships even after the intentional slowing down of ships and also diverting ships to avoid piracy-prone waters. Of the new containership deliveries, 41 percent were either delayed or postponed in 2009, yet more than a million new TEU-capacity ships entered service.
With operators returning chartered tonnage, average charter rates dropped 60 percent from their 2008 levels. Close to 600 containerships (about 10 percent of the total capacity) were laid up at one point. Of these ships, 70 percent are owned by German investors. Overall, the container lines' total revenue dropped from $243 billion in 2008 to $188 billion in 2009, of which at least $30 billion was primarily through falling freight rates. It is estimated that the collective loss of container operators was greater than $20 billion in 2009.
Recession or not, the U.S. cruise sector continued to grow, with about 13.5 million passengers in 2009. A quarter of these guests were from outside the United States and Canada. Fanciful new ships such as Oasis of the Seas (capacity of 6,360 passengers) were christened. According to statistics from the 25 member lines of the Cruise Line International Association, the market remains balanced, with an average occupancy rate of 104.4 percent. Cruise lines and their passengers reportedly spent $19.07 billion directly and $40.2 billion indirectly in 2008. The industry generated 357,710 jobs and paid $16.2 billion in wages and salaries nationwide. In 2010, cruise lines are investing $6.5 billion in 12 new ships beyond the $4.5 billion invested in 2009.
The U.S. Merchant Marine
There were no spectacular U.S. maritime industrial developments of which to boast in 2009, nor significant private-sector milestones to chronicle. The message that reverberated throughout the year was one of concern and negativity originating from the much broader macroeconomic complications discussed earlier. However, several new container and roll-on, roll-off (ro-ro) vessels were flagged into the U.S. registry because of military cargoes generated by the engagements in Afghanistan and Iraq, an increase in direct loans by the Export-Import Bank to ease the global credit crunch, and government stimulus money to refurbish domestic infrastructure.
The Recovery Act
As part of the President's American Recovery and Reinvestment Act, Transportation Secretary Ray LaHood released $98 million in economic stimulus grants to be distributed among 70 U.S. shipyards, for the purpose of creating jobs. Larger grant recipients include Aker Philadelphia shipyard ($2.3 million for training), Washburn and Doughty in Maine ($2.6 million for a new drydock), LEEVAC Shipyards in Louisiana ($3.7 million for two cranes and equipment), and Lyon Shipyard in Virginia ($4.5 million for drydock enhancement).
Secretary LaHood's $1.5 billion Transportation Investment Generating Economic Recovery grant program generated 1,381 competitive requests, collectively estimated at $56.9 billion. Seven percent of all requests came from seaports that asked for a total of $3.38 billion. The names of successful recipients were released in February 2010. Of the allotted total, $120 million (8 percent) will go to seven ports and port-related projects, and the Maritime Administration (MARAD) will administer these grants.
According to the House Transportation and Infrastructure Committee, 3,148 projects supported by stimulus funds have been completed, and 9,000 are still under way. The Recovery and Reinvestment Act set aside $64.1 billion for expenditures under the committee's jurisdiction. Seventeen thousand projects totaling $56 billion have been identified. The stimulus funds are doing what they were supposed to do: Laid off employees are being hired back, or new jobs are being created at some yards. The pace of the economic recovery and, hence, job creation is expected to pick up during the second half of 2010.
Haiti Relief Operations
MARAD activated six ships to assist earthquake relief operations in Haiti. Three eventually participated, including the former Hawaiian superferry Huakai, the SS Cape May, and the MV Cornhusker State. These Ready Reserve ships, crewed by civilian mariners, provided crucial support during relief operations at the request of the U.S. Department of Defense and have returned while 25 other U.S. commercial vessels continue with the operations.
Horizon Lines, the largest domestic carrier, has announced plans to begin a premium liner service from China to the United States, using 5 of its 2,824 TEU ships. The ships are presently on time charter to Maersk Line. They are part of the westbound Guam Jones Act service. The China run will begin on 10 December 2010, when the charter agreement with Maersk will terminate.
Horizon appears well poised to benefit from its niche service. Its entry into the Chinese market as a non-vessel-operating common carrier (NVOCC) in 2007 helped build the foundation for this venture. (NVOCCs do all the same things as traditional common carriers: provide regular shipping service and offer non-discriminatory freight rates. They do not operate their own ships, but procure shipping capacity from traditional carriers contractually.)
Maersk Line invested $400 million to recapitalize and reflag nine ships into the U.S. registry. The ships replaced were older and smaller; the new 4,000 TEU vessels are ten years old and enrolled in the Maritime Security Program. Maersk has also decided to stay put in Charleston, South Carolina, and extended its contract to 2014. The new operating arrangement at the port will not adversely impact the carrier's competitive stance vis-á-vis its competitors-unlike the current agreement.
Farrell Lines added two U.S.-flag ro-ro ships into its fleet, complementing the two added in early 2008. The Alliance Beaumont was reflagged while in Dubai, and the second ship, the Alliance Charleston, in New York.
Jones Act Developments
There was a proposal in Congress to amend the Jones Act (which requires that all goods transported by water between U.S. ports be carried in U.S.-flag ships constructed in the United States and owned and operated by U.S. citizens), but eventually this was withdrawn. It would have made the act inapplicable to ships that undergo the addition of more than 1.5 percent steel in a foreign yard. Presently, Jones Act ships may undergo foreign repairs involving less than 7.5 percent of the ship's steel weight; the upper limit may increase to 10 percent, subject to Coast Guard approval. The amendment was not pursued, presumably because any attempt to change the current criteria may have impacted the special consideration given to the Jones Act under the agreement that preceded the establishment of the World Trade Organization.
Shippers filed 57 lawsuits against Jones Act carriers, claiming antitrust violations and seeking treble damages. The lawsuits have been consolidated into class actions in federal courts in San Juan and Seattle, with a separate lawsuit filed in Alaska against TOTE (Totem Ocean Trainer Express, Inc.) and Horizon. Horizon Lines and Crowley Liner Services, two of the carriers in the U.S.-Puerto Rico trade, have settled class-action lawsuits, whereas Sea Star and Trailer Bridge have not. Horizon paid $20 million as a settlement, in addition to $21.2 million in legal fees. Crowley's settlement amount with the shippers remains unknown.
A separate criminal investigation into alleged execution or attempted coverup of a wide-ranging conspiracy to rig bids, fix prices, and allocate market shares in the U.S.-Puerto Rico trade that began in early 2008 resulted in four convictions: two former carrier executives from Horizon Lines and two from Sea Star Line were convicted for collusion on pricing or tampering with evidence.
The Hawaiian superferry and its parent company, HSF Holding, Inc., filed for bankruptcy protection on 30 May 2009, and shut down operations. MARAD and Austal USA have first and second mortgages on the two catamarans, and the state of Hawaii holds the third mortgage. MARAD guaranteed construction loans for the superferries, on which $135.7 million of the principal remains outstanding. Several other secured and unsecured creditors are also on the list.
Jones Act tanker operator U.S. Shipping Partners filed for Chapter 11 bankruptcy protection in 2009. The first three Jones Act tankers that began construction in the United States under the revised 2006 shipbuilding criteria ran into problems in 2009, and the three unfinished medium-range product tanker hulls are for sale. The ships were ordered based on a long-term charter from Shell to Texas-based AHL Shipping. The plan was to build them in modules at different locations, then assemble them at the Atlantic Marine Alabama (AMA) shipyard. The ships are 90 percent, 55 percent, and 30 percent complete respectively, and lie at the AMA. The dispute between the yard and the one-ship entities that ordered the ships is ongoing.
Other Legal Developments
On 7 November 2007, the 900-foot-long containership MV Cosco Busan collided with the San Francisco Bay Bridge, discharging 53,000 gallons of oil into the Bay in thick morning fog. In June 2009, the pilot involved in the incident was sent to jail for ten months. This is the first time a U.S. ship pilot has been jailed for an accident.
There was another "magic pipe" (bypassing of pollution regulations) conviction, a recurring issue in my annual reviews. The Panamanian operator of Georgios M, a 40,000-ton tanker, pleaded guilty to three felony violations of the Act to Prevent Pollution from Ships for failing to properly maintain an oil record book. The company will pay a $1 million criminal fine and make a $250,000 community-service payment. The incident occurred in U.S. waters off Texas; the U.S. Coast Guard prosecuted, and all payments will be made to the U.S. Treasury.
The American Bureau of Shipping has decided to oppose the new European Union requirement that any classification society accept marine-equipment certificates issued by another society. This could result in the bureau being prohibited from operating in the 27 European Union nations. The current practice is for classification societies to issue their own certificates for equipment installed on ships undergoing construction under their scrutiny.
The question of whether port authorities should have regulatory authority over harbor trucking remains controversial. There is currently an effort to amend the Federal Aviation Administration Authorization Act to give the federal government preemption authority over state and local entities in regulating interstate commerce. The port of Los Angeles strongly favors such an act of Congress, while the shipping community remains opposed.
The Federal Maritime Commission, the agency that regulates liner shipping services, has eliminated tariff-filing requirements for non-vessel-operating carriers, a controversial provision of the U.S. Shipping Act of 1984. This change will help small exporters in particular, and it will facilitate President Barack Obama's plan to increase exports.
Stevedoring Contract Negotiations
The East and Gulf Coast stevedoring contract between the International Longshoremen's Association and the U.S. Maritime Alliance received rank-and-file approval for a two-year extension to 30 September 2012. Although there was a strong push from some members for contract renegotiation, the current economic conditions did not help their bargaining position. The alliance's goal was to freeze wages at current levels and introduce other cost-saving measures.
The two-year extension will provide a wage increase for tiered wage members and a minimum of $20 per hour for all members. Senior members will receive a $1-per-hour wage increase beginning 1 October 2011. The container royalty cap will be eliminated, and member benefits will be strengthened, including protection from new technology (automation and computerization, which unions believe will reduce jobs) and work jurisdiction, which protects specific trades or functions. By late 2012, 90 percent of the union membership will be earning $32 per hour.
Container Ports and Terminals
According to recent statistics from PIERS' Journal of Commerce, 49.3 percent of U.S. exports and imports in 2008 were shipped through the West Coast, the first time this has dipped below 50 percent. East Coast ports handled 43.7 percent, and Gulf Coast ports the remaining 7 percent.
In general, Eastern ports are dealing with the recession better than those in the West. The East handled more exports in 2009 (49.3 percent versus 41 percent in 2008), whereas the West handled more imports (55 percent versus 39.8 percent in 2008). In the case of container business with Asian countries, the most voluminous liner trade route in the world, close to 70 percent is now handled by West Coast ports, with the remaining 30 percent through all-water services. There has been a significant erosion of West Coast ports' market share from the 1980s level. Rail executives believe that trade has stabilized, and that even after the Panama Canal has been widened, the current distribution will hold.
President Obama has set a goal to reduce greenhouse-gas emissions by 83 percent by 2050. According to the U.S. Environmental Protection Agency (EPA), in 2006 transportation sources were responsible for 29 percent of the total greenhouse-gas emissions in the nation. In 2009, U.S. ports received $30 million in stimulus funds from the EPA for projects related to reducing diesel emissions. The biggest recipient was the Port of New York and New Jersey, at $11 million.
Ports are introducing a variety of measures to cut down emissions. These include using clean trucks that comply with EPA standards, operating cargo-handling equipment with biodiesel fuel, using low-sulfur fuel in coastal waters, and restricting coastal steaming to low speed. A reduction from 24 to 18 knots lowers consumption of marine bunker fuel by 60 percent, besides cutting down emissions. But the California Air Resources Board's mandate to use cleaner fuel within 24 miles off the coast caused unanticipated engine problems while switching fuel. The rule has also resulted in some level of unorthodox voyage planning by ship operators, who now focus on limiting their transit through low-sulfur zones. They achieve significant cost savings by getting out of the zone quickly and taking a more circuitous route.
The clean-trucks program initiated by the ports of Los Angeles and Long Beach, though still mired in legal controversy, has been an outstanding success in cutting down nitrogen oxide and particulate-matter emission. The plan, introduced on 1 October 2008, banned pre-1989 trucks and has cut pollution by 80 percent two years ahead of schedule.
On 1 January 2010, the two ports as well as the port of Oakland banned pre-1994 model-year trucks. Operators must either use new, clean, diesel trucks for drayage (costing $100,000 apiece) or retrofit 1994-2003 trucks (about $20,000 per truck). Port and government subsidies are available up to a maximum of 50 percent of the cost of a new truck. The Port Authority of New York and New Jersey will join the California ports with its own clean-air program on 1 January 2011, when it will ban trucks built before 1995. As of 1 January 2017, trucks with engines that do not meet federal emission standards for 2007 models will likewise be banned. Unlike in Los Angeles, the East Coast program will not require owner-operators to become trucking-company employees.
The Environmental Protection Agency announced a comprehensive set of new regulations under the Clean Air Act in December 2009. There are now stringent standards for large marine diesel engines used on bigger ships. The near-term standards will come into force in 2011, and the long term standards (requiring 80 percent reduction in nitrogen-oxides emissions) in 2016.
The EPA also issued a proposed rule regarding international standards for marine engines and fuels. The most impressive component of the new regulations is the proposed North American Sulfur emission control area (ECA), destined to become the world's largest ECA. It would set aside 200 nautical miles off the Atlantic and the Pacific joint coasts of the United States and Canada, where the permitted sulfur content in fuel would drop to 0.1 percent by 2015. The provision was formally adopted by the International Maritime Organization's (IMO) Marine Environmental Protection Committee in March 2010.
The Great Lakes region and the ships that operate there and the Saint Lawrence Seaway have been exempted from the ECA-level fuel sulfur standard, for reasons of safety and economic hardship. Meanwhile, the EPA will evaluate the economic impact of the final rule on Great Lakes carriers.
Many of us are guilty of the oft-repeated statement that 90 percent of world trade is seaborne. But an analysis by Lloyd's Maritime Intelligence Unit of 2006 UN trade data for more than 1,000 commodities found that 75 percent of global merchandise trade by volume and 59 percent by value is transported on ships. By value, land transport carries 28 percent and air freight 10 percent.
The Global Climate-Change Convention
Transportation produces 28 percent of world carbon-dioxide emissions; 21 percent from trucks and cars, 2.6 percent from aviation, 2.7 percent from international shipping, and the rest from rail, domestic shipping, and fishing. Shipping and aviation are the only sectors not regulated under the Kyoto Protocol. According to an IMO study, international shipping was responsible for 3 percent of all manmade carbon emissions in 2007. Only six nations in the world produced more emissions in 2006-China, the United States, Russia, India, Japan, and Germany, in descending order. In July 2009, the IMO adopted an Energy Efficiency Design Index for new ships, and also a Ship Energy Efficiency Management Plan. These indices show potential emissions-reduction attainable from individual ships.
The much-anticipated December 2009 UN climate-change conference held in Copenhagen did not provide definitive guidance on reducing carbon-dioxide emissions from ships. The industry is anxiously looking for the IMO's Marine Environment Protection Committee to come to a resolution. Two proposals are at the forefront, one an emissions trading scheme (also known as cap-and-trade system) and the other a bunker tax levy, a penalty for not using low-sulfur fuel.
Many shipping interests believe that a cap-and-trade system will be highly disruptive for shipping and result in widely fluctuating fuel prices. Trade associations appear to be in favor of the bunker tax levy for reducing emissions, because they believe it will incentivize efficient fleet growth. But those who disagree state that it will simply become absorbed into the cost of doing business and not really result in emissions reduction. The absence of a unified response is not in the best interest of shipping, as it will result in regulatory freelancing by littoral states.
Major shipping companies are taking the lead in providing environmentally conscious shipping services. A. P. Moller-Maersk reduced the amount of carbon-dioxide emissions by 9 percent in 2008 compared with 2007. The company saved $500 million through slow steaming, slippery hull coating (which makes vessels glide more smoothly through the water), and use of better propellers and other efficiency measures.
Maersk has also reduced emissions per container by 15 percent and expects to drop it another 20 percent in the next ten years. The group is presently teaming with Lloyd's Register in a two-year program to run marine engines on biodiesel fuel. Samsung Heavy Industries has announced it will only build eco-friendly ships as of 2015, which will lower emissions by 30 percent from current levels. The goal is to progressively lower emissions to 50 percent by 2020 and 70 percent by 2030, and the cost of new ships will go up by 10 percent.
Shipyards delivered 77.6 million gross tons of new capacity in 2009, an increase of 14.1 percent from last year. Compared with 2008, there was 25 percent growth in the delivery of dry bulk carrier tonnage, and 30 percent growth in crude tanker tonnage. South Korean yards led the construction (29.2 million gross tons) followed by the Chinese (22 million).
Many ship owners placed orders for new tonnage anticipating the boom years in trade growth to continue. But the slump in global trade left many strapped for cash and requesting either a delay in ship delivery or, in some cases, outright cancellation of the order. Ship owners are yet to raise more than $300 billion to finance outstanding new orders. Delivery of one in every six new ships is being delayed now.
While tanker deliveries are being delayed seven months on average and bulk carriers eight months, the delay in delivering containerships runs into multiple years. There are 20 containerships (180,000 TEUs) in various Korean and Japanese shipyards awaiting owners to make financing arrangements before taking delivery. It has been reported that 340,000 TEUs of containerships due for delivery in 2009 have been subject to deferrals, slippage, or cancellations.
Shipyards would rather delay delivery by 6 to 12 months than cancel a new-building order. The Israeli carrier Zim paid $38.6 million to a Taiwanese shipyard for not going ahead with a $289 million order for building six 1,700-TEU ships. CMA CGM, the French container operator, lost its $60 million deposit for a 6,500-TEU containership on order with Hanjin Heavy Industries. Hanjin then sold off the finished ship to Cardiff Marine for $41 million, and Cardiff then time-chartered it to Mediterranean Shipping Company (MSC), one of CMA CGM's key competitors, adding insult to the injury.
The financially troubled CMA CGM has sought delay or cancellation of 30 new ship orders due for delivery in 2012-13. The German government is reportedly exerting pressure on Korean shipyards on behalf of German owners. Maersk has decided to shut down its in-house Odense Steel Shipyard and sell off the facility. The last ship under construction there will be delivered in February 2012 and employees terminated gradually.
Rotterdam Rules 2009
Shipping stakeholders will readily agree that rules governing ocean-carrier liability for cargo damages are antiquated and long overdue for a complete overhaul. Ocean shipping constitutes just one leg of a carefully designed global supply chain today, in which most movements are door-to-door on a through bill of lading (meaning the cargo moves from the exporter's production facility to the importer's warehouse using a single set of shipping documents).
Until recently, attempts to craft a liability regime reflecting the realities of contemporary supply chains remained futile. The UN General Assembly adopted the Rotterdam Rules, the new set intended to supersede the existing Hague-Visby and Hamburg Rules, after seven years of negotiations. They will be enacted one year after ratification by 20 nations. If ratified by the U.S. Senate, the Rotterdam Rules will replace the venerable 1936 Carriage of Goods by Sea Act.
Although they retain the revered fault-based liability principle, Rotterdam Rules go far beyond current regulations by recognizing multimodal legs of a door-to-door movement before and after the ocean transit. Carriers will now have to exercise due diligence throughout the voyage, and many traditional carrier defenses, often ridiculed by shippers, will not be available. Furthermore, liability will extend to port and terminal operators.
Shippers may still opt for only port-to-port coverage. Similarly, volume contracts and service contracts may be exempted by agreement. Although carriers, many shippers, and their trade associations are in favor of the new rules, they have met with stiff resistance from the European shipper community and, hence, the EU. The National Industrial Transportation League, the powerful U.S.-based trade association of big shippers, does not agree with its European counterparts. The American Bar Association has also endorsed the Rotterdam Rules.
The International Maritime Bureau's Piracy Reporting Center documented 406 incidents of piracy and robbery in 2009. Worldwide, there were 153 incidents of ship boarding, 49 hijackings, 84 attempted attacks, and 120 cases of vessels being fired upon. Crew members taken hostage numbered 1,052, with 68 injured and 8 killed. Somalia accounted for more than half of these figures. Some attacks occurred more than 1,000 miles off the Somali coast.
The economic cost of piracy is escalating, in addition to the human cost. When a laden tanker from Kuwait bound for Rotterdam goes around South Africa to avoid potential attacks, it adds 74 percent to the length of a voyage. For a containership bound for Rotterdam from Singapore, the increase is 44 percent. The direct and indirect costs associated with these longer voyages constitute the true price of piracy.
The International Transport Workers Federation stated in November 2009 that the Indian Ocean was unsafe for seafarers. Many ship owners have resorted to using private armed security while transiting around the Horn of Africa. A. P. Moller-Maersk has hired former soldiers and an armed escort ship from Tanzania to protect its fleet off Somalia.
Seafarers and Maritime Safety
Having designated 2010 the year of the seafarer, the IMO has launched a major recruiting campaign to attract youngsters to careers at sea. Currently there are close to 1.5 million seafarers worldwide. Among officers the current global demand is 498,000, with a supply shortage of 33,000 that is projected to reach 56,000 by 2013 according to Drewry shipping consultants. As per Moore Stephens, another consultant, crew wages increased 21.4 percent in 2008, more than twice as fast as the previous year despite the economic slump.
Overall, ship operating costs are now increasing at a rate of 16 percent, those of the crews being the fastest-growing component. Maersk Line has decided to replace its Danish officers with foreign officers and save about $6 million annually. The Equality Act of 2010 enacted in the UK is of great concern to British ship owners, because it mandates paying the same salaries to resident and non-resident seafarers who are employed on British-flag ships. It is believed that if the act is not amended, 43 percent of the 360 U.K.-registered ships may decide to flag out.
Given our usual propensity to highlight the negatives, it is important to recognize the remarkable positive strides in maritime safety accomplished during the past few decades. This is evidenced by the declining number of ships lost and quantity of oil spilled at sea (see Figures 1 and 2), despite a huge increase in seaborne cargo movements worldwide.
Although this accomplishment can be traced to multiple initiatives enacted at various levels by governmental and nongovernmental agencies during the past 40 years, the year of the seafarer is the most propitious time to recognize the selfless devotion and dedication of 1.5 million merchant mariners to safer ships and cleaner oceans.
There are strong indications that the worst is behind us in macroeconomic terms. Predictably, the recovery will begin with the dry bulk sector, followed by the tanker sector limping along. Even the deeply wounded liner sector is presently showing good signs of resurgence. There are reported shortages in liner capacity in key sub-markets, because of improving trade flows and carriers' belt-tightening measures.
Carriers have been so successful in pushing through their rate-restoration measures in early 2010 that shippers may soon call into question some aspects of their anti-trust immunity. The oft-discussed commoditization of liner shipping became a reality in April 2010, when the Containership Company, a no-frills, low-cost carrier using five small chartered ships and a total administrative staff of 19, set sail to Los Angeles from China.
Global supply chains will never be the same with the acceptance of slow and super-slow ships, and near-shoring (which brings supply sources closer to home) will slowly gain on global sourcing. After somewhat of a moribund 2009, shipyards will recover comfortably, with China taking the lead from South Korea. The Korean builders, in turn, will seek a newer niche and start building high-profile passenger ships, a hitherto uncharted territory for them. Overall, 2010 should turn out to be the year that stems the decline, not only in pecuniary terms but also in terms of environmental degradation. After all, this is the year of the tiger-and, more important, the year of the seafarer!