The year 2018 was meant to be when the uncharacteristic self-discipline and wise investment decisions of shipowners during the previous two years finally yielded a world maritime industry recovery after years of agony. The first part of the year mostly lived up to that expectation. All necessary economic fundamentals were remarkably well-aligned for the industry to navigate out of its prolonged sluggishness. However, during the latter part of the year, renewed geopolitical tensions, trade disputes, and antiglobalization forces slowed the market. Those same forces are shaking the foundations of globalization, supply chain efficiency, and interdependencies that underpin world commerce. Shipping, often perceived as the world’s most globalized industry, appears to be in a quandary. The “Review of Maritime Transport,” published annually by the United Nations Conference on Trade and Development (UNCTAD), lists rising protectionism as the foremost trend shaping maritime transport. Maersk Lines, the dominant liner operator, predicts that trade restrictions in 2019 will erase 2018 gains in containerized freight volumes worldwide.
1. Developing economies had a trade surplus of 190 million tons in 2012. They became net importers in 2014. However, there is wide disparity among these nations, with developing economies in the Americas and Africa continuing their trade surplus, while those in Asia and Oceania have a deficit. See the United Nations Conference on Trade and Development’s Handbook of Statistics 2018, chapter 5, “Maritime Transport.”
2. This is a mandate from the International Maritime Organization (IMO). The International Chamber of Shipping (ICS) estimates low sulfur fuel oil to cost about 50 percent more than the residual bunker fuel in use today; at this rate, crude oil trading at $70 per barrel will result in a price differential of up to $400 per ton. See ICS 2018 Annual Review Key Issues, 15. The IMO Ballast Water Management Convention entered into force worldwide on 8 September 2017, 13 years after its original adoption. All ships are to retrofit a system between September 2019 and September 2024. As per ICS, the collective cost of installing the new treatment system for all applicable ships is estimated to be $100 billion.
3. In 2017, only 37 million dwt dry-bulk tonnage entered the market, while 12 million dwt exited.
4. The dam in Brumadinho—a Brazilian mining town controlled by mining giant Vale-—burst on 25 January 2019, killing at least 166 people; several hundred are still unaccounted for.
5. No VLCC with U.S. crude has called on Chinese ports since October 2018, whereas before the trade war the typical rate was 3–4 VLCCs per month. During the second half of 2018, U.S. export of crude and refined oil was one-seventh of what it was during the first half. See U.S. Energy Information Administration.
6. Drewry Maritime Financial Research.
7. The study was conducted for the U.S. Transportation Institute.
8. Department of Justice, 1990, Analysis of the Impact of the Shipping Act of 1984, 25.
9. For a thorough review of contestable market theory, see W. J. Baumol, John C. Panzar, and Robert D. Willig, Contestable Markets and the Theory of Industry Structure (New York: Harcourt Brace Jovanovich, 1982).
10. Shashi Kumar, “Competition and Models of Market Structure in Liner Shipping,” Transport Reviews 15, no. 1 (January 1995): 3–26.