MARITIME & OCEANOGRAPHY INDUSTRY PROFILE

The worldwide population of seafarers serving on internationally trading merchant ships is estimated at 1,647,500 seafarers, of which 774,000 are officers and 873,500 are ratings.

China, the Philippines, Indonesia, the Russian Federation and Ukraine are estimated to be the five largest supply countries for all seafarers (officers and ratings). The Philippines is the biggest supplier of ratings, followed by China, Indonesia, the Russian Federation and Ukraine. While China is the biggest supplier of officers, followed by the Philippines, India, Indonesia and the Russian Federation.

The global demand for seafarers is estimated at 1,545,000, with the industry requiring approximately 790,500 officers and 754,500 ratings. This indicates that the demand for officers has increased by around 24.1%, while the demand for ratings has increased by around 1.0%. The current supply-demand situation highlights a shortage of approximately 16,500 officers and a surplus of around 119,000 ratings.

While the global supply of officers is forecast to increase steadily, this trend is expected to be outpaced by increasing demand.

The forecast growth in the world merchant fleet over the next ten years, and its anticipated demand for seafarers, will likely continue the trend of an overall shortage in the supply of officers. This is despite improved recruitment and training levels and reductions in officer wastage rates over the past five years.

Future outlook indicates that the industry and relevant stakeholders should not expect there to be an abundant supply of qualified and competent seafarers without concerted efforts and measures to address key manpower issues, through promotion of careers at sea, enhancement of maritime education and training worldwide, addressing the retention of seafarers.

It may seem obvious to say that, today, we live in a global world, and it is certainly true that international trade among all the nations and regions of the world is nothing new. From the Phoenicians, through the Egyptians, the Greeks and the Carthaginians, the Chinese, the Vikings, the Omanis, the Spaniards, the Portuguese, the Italians, the British, the French, the Dutch, the Polynesians and Celts, the history of the world is a history of exploration, conquest and trade by sea.

But there is no doubt that we have now entered a new era of global interdependence from which there can be no turning back. In today‘s world, national boundaries offer little impediment to multi-national corporations: cars with far-eastern brands are not only sold but also assembled in Europe, while European brands are assembled and sold in North America; ―western‖ energy companies invest millions of dollars in Asia and the Far-East and the strategy and investment decisions they make can affect millions of people all over the world.

The high-flyers of the business world can cross oceans in just hours, communicating by e-mail and mobile phones as they go. In the financial markets, brokers and traders have thrown off the constraints of time zones and distance and now access the world markets via computer. In the 21st century, industries such as computer software, media and fashion have no obvious geographical dimension and recognize no physical boundaries. In today‘s consumer world, the same brands are recognized, understood and valued all over the world.

Looking back into history, we can trace the stages through which we have progressed to arrive at this new world order. There was a time when, for any given community, the most important raw materials, the most important products and the most important markets were essentially local. But, as interaction between communities grew, trade developed and regional specialties, often founded on the availability of particular raw materials or on saleable skillsets that had been developed over time, began to emerge.

As the world became more developed, proximity to raw materials and to markets became the factors that, above all others, shaped the world economy and the major trade patterns and shipping routes. Eventually, the great seaborne trades became established: coal from Australia, Southern Africa and North America to Europe and the Far East; grain from North and South America to Asia, Africa and the Far East; iron ore from South America and Australia to Europe and the Far East; oil from the Middle East, West Africa, South America and the Caribbean to Europe, North America and Asia; and now we must add to this list containerized goods from the People‘s Republic of China, Japan and South-east Asia to the consumer markets of the western world. Global trade has permitted an enormous variety of resources to be widely accessible and thus facilitated the widespread distribution of our planet‘s common wealth.

Regional & International Issues

Container ships carry most of the world’s manufactured goods and products, usually through scheduled liner services.

Bulk carriers are the work horses of the fleet, these transport raw materials such as iron ore and coal. Identifiable by the hatches raised above deck level which cover the large cargo holds.

Tankers transport crude oil, chemicals and petroleum products. Tankers can appear similar to bulk carriers, but the deck is flush and covered by oil pipelines and vents.

Ferries usually perform short journeys for a mix of passengers, cars and commercial vehicles. Most of these ships are Ro-Ro (roll on – roll off) ferries, where vehicles can drive straight on and off, making it a speedy and easily accessible way to travel.

Cruise ships have increased rapidly since the 1980s, leading to a new generation of large and luxurious ‘floating hotels’.

Specialist ships such as anchor handling and supply vessels for the offshore oil industry, salvage tugs, ice breakers and research vessels.

Port Operations, Performance and Bargaining Power
Liner shipping alliances and vessel upsizing have made the relationship between container shipping lines and ports more complex and have triggered new dynamics where shipping lines have greater bargaining power and influence. Vessel size increases and the rise of mega alliances have heightened the requirements for ports to adapt.

While liner shipping networks seem to have benefited from efficiency gains arising from consolidation and alliance restructuring, the benefits for ports have not evolved at the same pace. Together, these trends have heightened competition among container ports to win port calls with decisions by shipping alliances regarding capacity deployed, ports of call and network structures being potentially able to determine the fate of a container port terminal. This dynamic is further complicated by the shipping lines often being involved in port operations, which in turn could redefine approaches to terminal concessions.

Global ports and terminals need to track and measure performance, as port performance metrics enable sound strategic planning and decision-making, as well as informed investment and financing decisions. As global trade, supply chains, production processes and countries’ effective integration into the world economy are heavily dependent on well-functioning port systems, it is becoming increasingly important to monitor and measure the operational, financial, economic, environmental and social performance of ports. In this respect, improved data availability enabled by various technological advances can be tapped. In addition, work carried out under the UNCTAD Port Management Programme and the port performance scorecard could be further strengthened.

Technological advances in the shipping industry, such as autonomous ships, drones and various blockchain applications, hold considerable promise for the supply side of shipping. However, there is still uncertainty within the maritime industry regarding possible safety, security and cybersecurity incidents, as well as concern about negative effects on the jobs of seafarers, most of which come from developing countries. While the development and use of autonomous ships offer numerous benefits, it is still unclear whether this new technology will be fully accepted by Governments, and particularly by the traditionally conservative maritime industry. There are legitimate concerns about the safety and security of operation of autonomous ships and their reliability. The diminishing role of seafarers and ensuing job loss are a concern.

At present, many blockchain technology initiatives and partnerships have the potential to be used for tracking cargo and providing end-to-end supply chain visibility; recording information on vessels, including on global risks and exposures; integrating smart contracts and marine insurance policies; and digitalizing and automating paper filings and documents, thus saving time and cost for clearance and movement of cargo.
Combining onboard systems and digital platforms allow for vessels and their cargo to become part of the Internet of things. A key challenge will be to establish interoperability so that data can be exchanged seamlessly, while ensuring at the same time cybersecurity and the protection of commercially sensitive or private data, including in view of the recent General Data Protection Regulation of the European Union.

Many technological advances are applicable in ports and terminals and offer an opportunity for port stakeholders to innovate and generate additional value in the form of greater efficiency, enhanced productivity, greater safety and heightened environmental protection. In light of these developments, ports and terminals worldwide need to re-evaluate their role in global maritime logistics and prepare to effectively embrace and leverage digitalization-driven innovations and technologies.

Competitive Landscape

As with all industrial sectors, however, shipping can be susceptible to economic downturns. Indeed, following several years of incredibly buoyant shipping markets, for many trades the best in living memory, much of the international shipping industry has fallen prey to the worldwide economic downturn. Shipping is inherently the servant of the economy, so the contraction in trade, following the beginning of the ‘credit crunch’ in late 2008, has translated into a dramatic and abrupt reduction in demand for shipping.

Notwithstanding the current situation, the longer-term outlook for the industry remains very good. The world’s population continues to expand, and emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports so safely and efficiently. As the below graph illustrates, the volume of world trade carried by sea has again begun to steadily increase in recent years. In the longer term, the fact that shipping is the most fuel efficient and carbon friendly form of commercial transport should work in favor of an even greater proportion of world trade being carried by sea.

Supported by stronger global demand, more manageable fleet-capacity growth and overall better market conditions, freight rate levels improved significantly in 2017, except for those of the tanker market. Container
freight rate levels increased, with averages surpassing performance in 2016 and with profits in the container shipping industry reaching roughly $7 billion by the end of 2017. CMA CGM recorded the best operating results in the container shipping industry, with core earnings before interest and taxes reaching close to $1.58 billion, followed by Maersk Line, with gains of $700 million. Hapag-Lloyd ranked third, with gains amounting to some $480 million. The 2017 surge in bulk freight market resulted in gains for carriers that helped offset the depressed earnings of 2016. The tanker market
remained under pressure, owing mainly to increased vessel supply capacity that outpaced demand growth and undermined freight rates. While these trends are positive for shipping, recovery remains nevertheless fragile in view of the highly volatile rates yet relatively low levels.

On the demand side, the uncertainty arising from wide-ranging geopolitical, economic, and trade policy risks, as well as some structural shifts, have a negative impact on maritime trade. Of immediate concern are inward-looking policies and rising protectionist sentiment that could undermine global economic growth, restrict trade flows and shift their patterns.

The continued unfolding of digitalization and e-commerce and the implementation of the Belt and Road Initiative. These bear major implications for shipping and maritime trade.

From the supply-side perspective, overly optimistic carriers competing for market share may order excessive new capacity, thereby leading to worsened shipping market conditions. This, in turn, will upset the supply and
demand balance and have repercussions on freight-rate levels and volatility, transport costs and earnings.

U.S. companies have one additional option. They can carve out a separate segment that only serves the domestic market and is subject to the Jones Act. The Act requires operating vessels to be American built, crewed, and owned. It’s more expensive to operate within these constraints, but the benefit is that foreign competition is prohibited. Though the domestic market is, of course, economically sensitive, carrier earnings and cash flows are more stable than in the international market.

Sales & Marketing

Bulk-commodity carriers generate revenue through relatively stable, long-term contracts, called time charters, and short-term agreements in the highly erratic spot market. Waves of global freight demand fall over tides of vessel capacity. Ship construction orders pick up when the business climate is fair, but deliveries may take up to three years, a period over which the economic trade winds can shift direction. It’s not unusual for spot rates to move by 90% within a year, interspersed with seasonal fluctuations.

The Baltic Dry Index (BDI) is a good barometer of shipping rates for such goods as iron ore and grain. BDI figures can be found in many financial publications, including, sporadically, the Wall Street Journal. Clarkson Research is one of the best sources of rates charged by carriers of oil and other wet commodities by tanker.

Elsewhere, containerships serve several customers on a single voyage over regular liner routes. Per-container rates are typically negotiated once a year. Pricing information for this segment is best gleaned from individual company financial reports.

Vessel operations are capital-intensive, meaning that profit margins can vary dramatically, even on small changes in asset utilization. In addition to shipping with their own vessels, most companies will charter in tonnage. Time charter terms vary, but vessel expenses are usually paid by the shipowner. Carrier profit margins differ from time to time, depending on the ratio of owned-to-leased assets. Net revenue, or gross revenue less voyage expenses, may provide a better picture of a shipper’s operating performance.

Below the operating line, other income is highly unpredictable, especially since we classify most gains and losses on ordinary ship sales, derivative instruments, and foreign exchange (even when unrealized) as recurring. The effects of currency translation can be quite significant, given many companies’ large international operations.

Interest-rate, foreign-exchange, and fuel hedging activities are common in the industry. In fact, even if debt outstanding remains unchanged, interest expense can differ, quarter to quarter, because of foreign exchange gains and losses. Debt instruments may be denominated in several currencies.

Income taxes are not a factor for overseas business. Each ship operating in international markets is treated like a foreign subsidiary and is usually registered (flagged) to a country where income taxes are very low or nonexistent. Moreover, since 2004, the United States has allowed the deferral of taxation on non-repatriated foreign shipping income.

Over the past few years, within the Maritime group, the act of spinning off certain segments into publicly traded companies or master limited partnerships (MLPs) has become popular. The parent company usually retains a controlling interest. This monetizing of assets improves financial flexibility. “Daughter companies” may also have an easier time raising funds either by issuing equity or debt. Their loans are typically non-recourse to the parent. The spinoffs may be attractive to investors wanting to limit exposure to risky sectors. Buying units in a liquefied natural gas shipping service partnership is an example of such an investment. These partnerships often produce steadier cash flow, especially if they are in fixed-rate businesses.

A vessel pool is another organizational strategy with a long history of financial benefits. It involves two or more carriers massing ships of a single class into one fleet. The pool provides big customers with a high level of service, while improving scheduling efficiency and vessel utilization plus reducing overhead costs for the carriers. Partners often share investment in ships, thereby helping to conserve capital outlays.

It is difficult to quantify the value of volume of world seaborne trade in monetary terms, as figures for trade estimates are traditionally in terms of tons or ton-miles, and are therefore not comparable with monetary-based statistics for the value of the world economy.

However, the United Nations Conference on Trade and Development (UNCTAD) estimates that the operation of merchant ships contributes about US$380 billion in freight rates within the global economy, equivalent to about 5% of total world trade.

Shipping trade estimates are often calculated in ton-miles, as a way of measuring the volume of trade (or “transportation work “, as it is sometimes referred).

Throughout the last century the shipping industry has seen a general trend of increases in total trade volume. Increasing industrialization and the liberalization of national economies have fueled free trade and a growing demand for consumer products. Advances in technology have also made shipping an increasingly efficient and swift method of transportation. Over the last four decades total seaborne trade estimates have quadrupled, from just over 8 thousand billion ton-miles in 1968 to over 32 thousand billion ton-miles in 2008.