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June 28, 2023

Voyager News, Voyager Blogs

Risk is a fact of life, how we manage it matters

The maritime industry is a risk management business. From seafarer to CEO, how individuals and companies handle the process of operating ships, moving cargo and navigating the environment is the core business.

In recent years the maritime industry has proven its ability to maintain trade lanes despite existential challenges, risk concerns among maritime leaders have shifted to financial and political instability, reflecting broader global trends.

In the 2023 Maritime Barometer, the International Chamber of Shipping describes the current era of political instability as a ‘risk multiplier’, threatening economic volatility and reduced growth as longstanding policies, trade arrangements and relationships are eroded.

The impact of the conflict in Ukraine on food and energy prices was dramatic and remains a factor despite multilateral efforts to restore trade. Simmering territorial disputes in the South China Sea and ongoing instability in South Asia have grown more entrenched, threatening trade in each region.

Political instability affects many aspects of maritime business including trade flows, port access and supply of seafarers. By driving waterborne migration in unsafe vessels or increasing stowaway attempts, humanitarian crises also have a direct impact on maritime safety.

Financial instability is particularly troublesome for an industry wrestling with the expensive challenges of decarbonisation, digitalisation and supply chain resilience. The long list of financial issues encountered globally including the cost-of-living crisis, high levels of public debt, potential sovereign defaults, reduced government spending, the impact of the conflict in Ukraine and the aftermath of the pandemic are seeing the risk mercury rise.

Encouragingly, confidence in dealing with the consequences of instability remain high among those surveyed by ICS. Given the volume of goods transported by sea, financial trends in shipping are likely to have a major impact on consumers. Although there are numerous factors that affect the price of consumer goods (including supply of goods, import policies and more), it would be relevant for shipping to leverage its position as the leading method of global transportation in discussions with national authorities.

The slow pace of international regulation on environment and climate are driving up the risk of regional regulation and lowering confidence among shipping’s leaders, threatening the ‘level playing field’ of the global maritime regime. The EU’s ‘fit for 55’ plan and expansion of the EU Emissions Trading System (ETS) to shipping is the most prominent example to date, but similar schemes in the US, China and even the UK are under discussion.

A patchwork regulatory framework presents a major financial risk and potential administrative burden and may even necessitate vessel redeployment if compliance cannot be demonstrated in a particular jurisdiction – a view reflected in the growing percentage of respondents expressing lower levels of confidence in coping with multiple regulatory frameworks.

However the EU has indicated that its regional GHG reduction measures may be revisited once a workable global regime is in place at the International Maritime Organization (IMO) that is aligned to its climate goals. If regional regulators can accommodate the need for an aligned approach, the impact of fragmented regulation on maritime can be managed, ICS concludes.

ICS’s Protectionism in Maritime Economies Study 2022 outlined the trade barriers being raised by governments worldwide. The study demonstrated that removing restrictive maritime trade policies could boost GDP by as much as 3.4%. Such barriers can represent a reaction to fears over food and energy security, as evidenced by the protectionist policies introduced by multiple governments in response to the conflict in Ukraine.

In other cases, perceived strategic advantage is the goal, as with US and EU legislation which last year sought to counter the rising dominance of China in the critical market for microchips. Accordingly, respondents viewed protectionist policy as a growing risk and also indicated a reduced confidence in their ability to mitigate this.

The ICS study indicated that “relatively few countries prioritise the maritime transport sector when negotiating trade agreements”, citing low awareness of the importance of maintaining competitive and cost-efficient maritime supply chains. Much remains to be done to raise the maritime industry’s profile with governments, as an essential element of a robust and resilient global economy.

Probably the biggest challenge for the industry is not battling temporary effects but the longer term issues. Short term volatility and political risk are the stuff of shipping markets and can be profitable for owners and operators prepared to take risks. Behind this lies preserving the safety of mariners, freedom of navigation and improving the relationship between ship and shore in a way that lowers operational risk and in the process keeps ships, seafarers and society safe.

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