The past year was unlike any in recent memory for commercial shipping. It may have begun with images of a hapless digger staring at a container ship in the Suez Canal, but a more vivid image now is of a malevolent monopoly or a greedy oligopoly responsible for everything from worldwide supply chain bottlenecks to global inflation and uncontrolled greenhouse gas (GHG) emissions. These perceptions can be debated, but it was only a year ago that one could not sufficiently thank the maritime industry—and mariners in particular—for their dedication to delivering essential supplies. Even the plight of mariners at sea from 2020 has become a distant memory for many, although that humanitarian crisis and the denial of basic human rights linger on.
The Global Shipping Market
Although 2020 was a daunting year for shipping, the aftermath of COVID-19 could have been far worse. The consensus now, as summarized in the 2021 United Nations Conference on Trade and Development (UNCTAD) Review of Maritime Transport, is that the asynchronous pattern of infection peaks and valleys experienced in production and consumption centers blended to smooth the overall impact. The fast development of vaccines, timely fiscal policy measures, and an exceptional increase in demand for consumer goods and e-commerce collectively softened the curve and provided an asymmetrical, nascent recovery for shipping.
Maritime trade shrank 3.8 percent in 2020, although the year-on-year decline was only 1.7 percent when adjusted for distance traveled. Midyear forecasts from UNCTAD and Clarksons Research projected an increase of 4.3 percent in 2021, moderating thereafter to slightly more than 3 percent. The World Trade Organization estimates world merchandise trade volume growing in 2021 by an uneven 8 percent, anchored by exports from China.
The asymmetrical shipping market trend that surfaced in late 2020 became clearer in 2021, with the liner (container) sector earning windfall gains and the dry bulk sector emerging a distant second, leaving the tanker market in abject melancholy. However, the asset value of ships rose across all sectors. This kept shipowners holding on to many old ships well past their operating lives even though the scrap iron market value reached extraordinary levels in 2021, as reported by a number of maritime sources. There was an exceptionally high level of asset play through the sale and purchase of used ships, exceeding the $46 billion record set in 2007.
There was also a major boom in new ship construction in 2021, led by container ship owners and operators in response to escalating charter rates and worldwide port congestion. The cost of operating ships grew under COVID-19, driven by crew travel restrictions, vaccination delays, quarantine expenses, unavailability of qualified crew from traditional source nations, and the rising cost of fuel.
The shift from “just-in-time” to a “just-in-case” inventory management strategy for consumer goods, noticed last year, went up several notches in 2021, as consumer demand remained insatiable. This led to a severe global supply chain overload, with the United States most affected, as it had neither the built-in resilience to handle such surges nor the requisite sophistication for seamless container movements to interior consumption centers once discharged from a ship.
The U.S. port system clearly showed its years of neglect, lack of planning, and underinvestment that placed it well behind the global norms. The strained logistics networks became the national headline and left constituent partners wobbling—whether from a shortage of truck drivers, railcars, and container chassis or broader infrastructure limitations and coordination failures. Every element of the supply chain essential to restoring normalcy came under stress, and allegations of extortionate demurrage and detention charges levied on some shippers have surfaced.
The spot market freight rate for moving ocean freight containers that began to ascend from the bottom of the “hockey stick” in late 2020 became clearly upright in 2021. Allegations of market abuse by oligopolistic operators caught the attention of affected traders and policy makers, but there was no stopping the lucky winners in the cruel lottery and their windfall gains. The year-end earnings of the top tier companies are now expected to surpass the combined total earnings of the largest technology giants, and the cumulative market-wide earnings before interest and tax (EBIT) are forecasted to exceed $190 billion.
Sensing the lucrative conditions in transpacific trade, new competition entered the route, and notable business enterprises such as Amazon, Walmart, Costco, Home Depot, and others established their own supply chains. However, it seems unlikely that liner shipping will descend anytime soon from its current heights to any semblance of the socially optimal, quasi-common carriage status with reliable and timely services and stable and predictable freight rates. The President’s Executive Order 13618, issued on 9 July 2021, encourages the Federal Maritime Commission (FMC) to ensure vigorous enforcement action against shipping companies that charge Americans exorbitant freight rates. A new version of the Ocean Shipping Reform Act (amending the U.S. Shipping Act of 1984, amended in 1998) is now under review by the Senate.
Dry Bulk Market
Structurally, the dry bulk shipping market is highly competitive and has relatively low barriers to entry and exit. This makes it prone to overinvestment in speculative new capacity at the slightest hint of rising freight rates. Uncharacteristically, shipowners exercised good self-discipline in the years just before COVID-19 and restrained themselves from adding new capacity.
Along with the China-centric nature of the bulk shipping business, this contributed to an excellent recovery, and 2021 emerged as its best year since 2008. This is despite the ongoing political spat between China and Australia that affected massive quantities of Australian coal and iron ore exports. The year ended with a few dark clouds on the horizon, such as inflation worries, and uncertainties about new COVID variants and lockdowns, and the return of overcapacity and the new International Maritime Organization (IMO) initiatives to throttle GHG emissions from ships.
By their nature, tanker markets are more susceptible to geopolitical volatility. The 2021 year was a continuation of the doldrums that began plaguing this market from mid-2020. The intentional machinations of the OPEC+ cartel to influence market price did not bode well for oil tankers. In spring 2021, the freight rate for large, old oil tankers was at its lowest level in 30 years and clearly insufficient to meet their operating expenses. The expectation that the market would turn around swiftly in the second half of 2021 did not materialize.
Prevailing excess tanker capacity worsened in 2021, as the delivery of new ships continued unabated. Interestingly, many shipowners allegedly found lucrative opportunities to carry Iranian and Venezuelan oil that helped sustain their asset value. There are reasons for optimism in 2022, although net-zero emission policies and decarbonization initiatives will clearly impact fossil fuel demand. The OPEC+ production cuts are expected to ease in 2022, which should increase the demand for tankers. Similarly, an expected increase in U.S. oil production, replenishment of depleted oil reserves by other nations, and a potential nuclear deal with Iran are all likely to enhance demand.
Thanks to the container sector, 2021 was the best year for commercial shipbuilding in 13 years. However, shipbuilders are languishing from lack of clarity on constructing ships for a net-zero GHG emission future. The IMO’s Fourth GHG Study (in 2020) found that 3 percent of global emissions originated from shipping, and by 2050 it may rise to 90 to 130 percent of the 2008 emission level. The Zero Emission Shipping in 2050 initiative signed by 14 nations during the recent Glasgow climate change conference and its commitment to phase down fossil fuel use and curb methane emissions were promising. But the subsequent IMO meeting held a week later in London saw only lukewarm commitments by several nations for the targeted 50 percent reduction in GHG emission levels.
Sixty percent of all new 2021 orders received by Korean yards were for ships fueled by liquefied natural gas (LNG) and liquefied petroleum gas (LPG), and 12 percent of all new ship orders worldwide will be fueled by LNG, a fossil fuel that releases methane upon consumption. While ship builders are ready to build eco-friendly ships, the absence of a global consensus is a serious impediment to investing in appropriate infrastructure and technology. AP Moller-Maersk, one of the largest shipping conglomerates, has asked the IMO to ban new ships powered by any fossil fuel and placed orders for ultralarge container ships that burn methanol. It intends to transport 25 percent of its seaborne cargo by ships using sustainable fuels by 2030 and eliminate all fossil fuel use by 2040, a decade ahead of others.
In general, 2021 was a write-off for major cruise operators worldwide owing to the prolonged no sail and later conditional sailing orders under the Center for Disease Control’s (CDC’s) U.S. COVID restrictions. The slow conditional resumption is now under threat from the Omicron coronavirus variant. As 2022 began, there were more than 5,000 infections on board the 110 cruise ships registered to provide COVID data to the CDC. This led to port call cancellations in key Caribbean locations. Although cruise operators believe their protocols and health precautions are working and infection rates are relatively low, the CDC was still recommending against embarking any cruise ships at press time.
The U.S. Maritime Sector
Overall, 2021 was a promising year for the U.S. maritime sector, with several advances and prospects of brighter days ahead. The increase in federal appropriations was a timely morale booster, with the weary U.S. port system receiving $241 million in Maritime Administration (MarAd) Port Infrastructure and Development Program (PIDP) grants. This program has now allocated $492 million for 32 projects nationwide in three years. Marine highway projects and small shipyards also received FY2021 grants.
In addition, the Bipartisan Infrastructure Law enacted in November 2021 will modernize and add resilience to maritime infrastructure by allocating $17.4 billion for waterway and coastal infrastructure, inland waterway improvements, wind energy projects, and port infrastructure. There is an additional $5 billion in direct funding for ports, including doubling the PIDP grant program to $450 million per year for five years. The United States should soon be able to prioritize key ports of entry for modernization and expansion.
On 9 December, a keel-laying ceremony was held for the first of five national security multimission vessels (NSMV) to be built at the Philly Shipyard in Philadelphia, Pennsylvania. The ship, to be delivered in spring 2023, will be MarAd’s first in recent decades. It will be the nation’s first-ever purpose-built training ship and will have state-of-the-art training capabilities, as well as humanitarian aid and disaster relief capability. The FY2022 National Defense Authorization Act authorizes funds for constructing the fifth NSMV, supporting a nascent ten-ship Tanker Security Program, doubling the funds for port grants, and approving $70 million for sealift upgrades.
The U.S. Transportation Command commander has also endorsed acquiring used ships to boost the Ready Reserve Force (RRF) capacity. The RRF is a critical asset essential to providing surge sealift capacity and rapid force projection globally. Several of the current RRF ships are due for replacement and are susceptible to failure, as demonstrated during the 2019 stress test. In July 2021, MarAd contracted Crowley Shipping to serve as vessel acquisition manager to help lower the RRF’s average age and enhance reliability.
The pioneering nomination of Centers of Excellence (COEs) for Domestic Maritime Workforce Training and Education in May 2021 is another historic chapter in the nation’s maritime workforce development portfolio. By nominating 27 community and technical colleges and maritime training centers from 16 states and Guam as COEs, the Maritime Administration’s training and educational mission now extends beyond traditional blue-water mariners into the domain of both ashore and afloat domestic maritime careers.
The United States has a deficit of about 1,800 sealift-qualified mariners (SQMs) needed to sustain its sealift needs beyond the first few months of conflict. The root cause is the shrinking number of U.S.-flagged commercial ships over the past several decades. As the majority of SQMs are civilian volunteers, even the 1,800 deficit is overly optimistic. How many SQMs will volunteer to serve in today’s near-peer contested environment scenario remains unclear, and there is no recent comparable revealed data for public scrutiny.
An added challenge to the recruitment and retention of SQMs is the impact of COVID-19 on mariner mental health. In a 2021 University of Washington School of Public Health survey of U.S. mariners, more than half of the respondents reported one or more of the following issues: depression, anxiety, suicidal ideation, high perceived stress, or post-traumatic stress disorder. Specific reasons cited include lack of shore leave and internet/phone access, lack of a shipboard support system, and COVID-19 infection back home. Sixty percent of respondents reported receiving no communication or training on mental health during the pandemic. The most affected respondents were women, younger mariners, and unlicensed mariners.
The shortage of licensed mariners is not confined to the United States. The five-yearly Seafarer Workforce Report published jointly by the Baltic and International Maritime Council (BIMCO) and the International Chamber of Shipping (ICS) estimates in its 2021 edition that there is a current worldwide deficit of 26,240 certified officers. It projects a worsening of this shortage to 89,510 highly skilled senior level officers by 2026. This forecast is unlikely to have fully captured the long-term impact of COVID-19 on mariner recruitment and retention.
A year ago, close to 400,000 mariners remained stuck on commercial ships and worked beyond contractual commitments while their replacements languished ashore unemployed. As new COVID variants emerge, concerns about freedom of movement for transport workers continue. Those that appealed recently for action include the Vatican, many nongovernmental welfare organizations, and all major international trade associations and labor unions. There are several recent reports of Asian mariners refusing to come back. Tragically, in their minds, the callous attitude they encountered during COVID has left the indelible image of being “unwanted outcasts.”
Even today, several IMO member nations have not recognized seafarers as essential workers. The global community must start treating them with the respect and dignity they deserve.
Women Mariners on U.S. Ships
Worldwide, the maritime industry is dominated by men, with women constituting barely 1.2 percent (24,059), per the 2021 BIMCO/ICS report. The United States has a higher proportion (about 7 percent) of credentialed women mariners, but their shipboard treatment underwent severe scrutiny in 2021. Far from being treated as fellow shipmates, there were several allegations of shipboard sexual assault and harassment (SASH) incidents. Alleged perpetrators include direct supervisors.
The days when brute strength was the prerequisite for seeking a career at sea are long gone. There is nothing on board a ship today that cannot be done by an appropriately trained female crew member. The nation cannot build its next generation of mariners by excluding one segment of society. Recruiting and retaining skilled women mariners is fundamental to building a critical workforce already lagging in supply.
In response to allegations of rape and other SASH incidents, the Sea Year training program at the U.S. Merchant Marine Academy was put on pause in early November 2021 until the Maritime Administration could establish new protocols that must be adhered to by ship owners and operators prior to embarking cadets. The six state maritime academies are adopting comparable measures. The intent is to foster a sea change in shipboard culture and promote fair and dignified treatment of all on board. Protocol changes and new policy measures have the best intentions, and their stern enforcement by regulators may become the norm, but respect for the human dignity and fundamental rights of women mariners must begin well before one ascends a ship’s gangplank.