Marine: Global Trade is Paramount, Safety and Environment Loom, Piracy Rears Ugly Head
MARINE INDUSTRY ABSTRACT
June 2008
Global issues, from world trade, to terrorism, to environmental issues, impact the marine industry. The growth in world trade over the past two decades, driven by free-trade agreements, has buoyed the industry. In the U.S., the Jones Act is a major obstacle for opening domestic shipping lanes, and is a point of frustration for the WTO and U.S. trading partners.
In the wake of the 9/11 terrorist attacks, the IMO has issued new requirements for ports and marine companies, which have proven to be both expensive and somewhat cumbersome. Piracy is on the rise, related to terrorism, and is a serious modern day problem for shippers. Cooperation from coastal states is imperative to prosecute such actions, and although improvement on this front has occurred from certain countries such as Indonesia, some areas have worsened such as off the coast of Somalia. Marine companies need to develop procedures in addition to new IMO rules to protect themselves from such attacks.
Recent oil spills have prompted the E.U. to speed up the phase-out of single hull tankers, just one year after a prior agreement with the IMO, and the IMO followed under E.U. pressure. These new rules create an opportunity for owners of double hull tankers, but are mostly an expense for industry players. But the primary reason for recent accidents becoming environmental disasters is the lack of ports of refuge in Europe, since no country wants to take on leaking oil tankers. This is a major problem for the marine industry, which ultimately bears the blame (and litigation liability) for accidents that become disasters due to the lack of such ports. New IMO regulations for managing ballast water, responsible for spreading invasive species, will bring substantial new costs for the industry. New IMO emissions standards have taken effect, but newer E.U. and California proposals will likely tighten standards and cause multiple standards for a greater number of areas.
Despite growing global trade and revenue for the marine industry, profitability problems persist for most of the industry. Newly consolidated companies are now viewing revenue from a risk-adjusted vantage point and using technology to improve profit margins. Organizations in this cyclical industry need to become more flexible to deal with the ebb and flow of the global economy. Companies should reduce their reliance on fixed costs by leasing more ships, outsourcing more ground-handling operations, and expanding into low-capital but related services. The industry needs to revisit its pricing strategies for contracts to allow for more flexibility, which will better serve customers and share more risks with them as well.
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