Public Service - analysis_opinion_debate

Public Service Review: Transport - Issue 23

What are the greatest challenges facing the shipping industry in the current economic downturn and beyond?

26 August 2009

The 21st Century shipping industry needs to improve environmental performance and streamline business models in order to survive the economic downturn. To provide for the future, more investment in water freight, at sea and inland, is needed. Here, industry experts debate the big issues in shipping

Peter Quantrill, Director General, British International Freight Association (BIFA)

Succinctly assessing the challen­ges facing the shipping industry is a challenge in itself. As the custodians of cargo movement in the world of international trade, freight forwarders face many challenges. But which are the most significant?

Challenges include:
• The ever-increasing demand to meet supply chain security initiatives;
• Constantly increasing requirements to address environmental and sustainability issues as we go about managing the shipment of cargoes around the globe;
• Addressing concerns over infrast­ructure issues and how they impact on logistics operations;
• The consequences of significant changes to Customs' procedures throughout the European Union;
• Facing up to overly complex government legislation that impacts negatively on forwarders' business.

The challenges seem endless, but for me the biggest remains the parlous state of the global economy.

Everyone I speak to talks about the challenge of cutting costs from their supply chains. Cost reduction should not be used as a blunt weapon, but as a finely targeted device. We need to be more constructive and creative in the ways we manage costs and not simply tackle the issue with blanket cuts.

In addition to cutting costs, our big opportunity is to build collaborative partnerships with customers, based on open and free dialogue. In third-party logistics, gain sharing – where companies work together to find cost savings and share the financial benefits – applies to many contracts. There's every reason to believe that it could work in the freight forwarding and international shipping arena.

Can freight forwarders meet the many challenges that they face? The forwarding industry has always shown great resilience throughout varying economic cycles, always showing itself adept at matching both its shape and service offerings to the changing needs of its customers. Rest assured, through its lobbying, representative, training and promotional work, the British International Freight Association will be there to help its members.

Francis Power, Executive Director, Freight by Water

Whilst the global shipping industry is facing the worst recession in living memory, with hundreds of ships laid up and freight prices plummeting, the domestic water freight market faces additional challenges.

Water freight offers three principal benefits to the UK over road freight: Tonne kilometre fuel consumption and carbon emissions reduced by two-thirds and reduced congestion on the UK's motorways and trunk roads. Whilst this is recognised in transport policy there remains a large gap between policy and implementation. The Department for Transport gives water freight a relatively low profile against the competing, passenger-bearing modes of road and rail.

A further challenge is land-use planning. Diverse interests compete for land uses on the developed coast and commercial waterways, especially for residential development. The worry is that land needed for warehousing and wharfage is lost to housing that could be built elsewhere. There are no plans to update Planning Policy Guidance 13 with a Planning Policy Statement and this is urgently needed.

For water freight to make its full contribution we need vibrant regional ports with large freight generators located within their hinterlands, also serviced by efficient road and rail links. However, this objective is often complicated by market distortion. Road and rail both receive billions of pounds from the public purse for infrastructure develop­ment and maintenance whilst the ports and shipping sector are expected to meet all their external costs. This market distortion is an incentive to keep freight on the road. High oil prices can mitigate this imbalance but decades of cheap fuel has undoubtedly disadvantaged the sustainable transport agenda.

Dr Anthony Gallagher, MSc Programme Leader: International Maritime Studies, Southampton Solent University

Simply put, the greatest challenge facing the shipping industry within the current downturn is that of economic survival, the conditio sine qua non of any business. The reduction in global trade has led to an overcapacity in all sectors of the industry resulting in idle ships being laid up around the world. For example, on the basis of recent figures from Lloyds Marine Intelligence Unit, 12% by deadweight of car and truck carriers, 11% of the LNG fleet and 8% of container ships are currently inactive.

This comes at a time when for a variety of reasons the industry has an estimated eight times its historical number of new builds entering onto the market within the next two years. The consequence has been to push down shipping rates and led to companies adopting various strategies, ranging from cancelling, delaying or otherwise changing 'new build' orders to redundancies and modifying employment contracts, in an attempt to reduce costs.

The problem has been exacerbated by the highly variable and unpredictable nature of market indicators. The Baltic Dry Index revival, for example, has been referred to as a 'dead cat bounce' fuelled by the Chinese import of bulk. Needless to say, uncertainty and short-term perception represent major challenges at this time.

There are, of course, other salient challenges facing the industry such as the need to improve environmental management with respect to ballast water and atmospheric emissions; security and piracy; addressing the fatigue issue; and, not least, the need for the industry to somehow portray itself in a more positive light. However, survival is the name of the game right now and inevitably, this means that all non-essential expenditure must be put on hold.

Mark Brownrigg, Director General, Chamber of Shipping

Whether we like or not, international shipping burns a great deal of oil – that's what happens in a massive industry transporting 80% of the world's traded goods, yet it remains by far the most carbon-efficient form of moving freight. Indeed, the carbon cost of carrying one tonne of freight by sea is 10 times less than by road, and 100 times less than by air.

So while the international shipping industry – like other sectors – needs to find new, innovative ways of reducing its carbon emissions, it is vital for the environment that shipping remains at the forefront of freight transportation.

We may be the greenest, but we can still be greener – and are working actively towards that. The Chamber of Shipping, the representative body for UK-based commercial shipping, has taken a lead position in the international industry's response to climate change. We believe that imposing a series of restrictions or emissions rules designed for land-based industry can only go so far in helping reducing our CO2. The necessary legislative framework for shipping needs to be far more thoughtful, and that's why we are the first shipping trade association in the world to advocate publicly a global and open emissions trading scheme.

Such a scheme would literally put a price on carbon emissions, encouraging the use of cleaner, greener ships, and driving a low-carbon economy within the sector.

This is a progressive, workable policy and it has the support of environmental organisations like the WWF. But the UK cannot solve this global problem alone. We need to work closer than ever with our international partners, in industry as well as government, to ensure our vision for a cleaner, greener international shipping industry becomes reality via a globally agreed framework developed by the UN's International Maritime Organisation.

John Dodwell, Chairman, Commercial Boat Operators Association

Economic downturns force comp­anies to review how they do things. We would expect logistics managers to follow the example of two international firms – one a supermarket importing wine in bulk to Manchester and the other a construction steel firm in Leeds – in re-assessing their supply chain. Both firms found that they could achieve savings if they didn't leave it to their suppliers.

Both firms were aware of the carbon footprint savings – barges use far less fuel than lorries creating less CO2 than lorries. But, more importantly, both firms found there were cost savings.

Why was that? One of the main reasons is the labour efficiency ratio of barges over lorries. Forget the pretty historic 25-tonne capacity narrow-boat for long distances. Think instead of 500 tonne, 1,000 tonne capacity barges. One man can move cargo more quickly by barge than if he drove a lorry to and fro.

Challenges the industry faces include fighting for waterside space for wharves and warehouses. Regional and local planners need to do more than pay lip service to not putting houses by the water. The proposed destruction of a Leeds waterside industrial area is a classic. When planning a new facility, logistics managers need to think water. All sites will have road connections. Why not plan the new facility beside a major waterway so the water freight option is there? Other challenges the industry faces at present include the construction industry downturn and 'suicide rates' bidding by road hauliers.

And don't ignore the potential of urban, smaller waterways to ease congestion in the conurbations. Deliveries to London building sites – eg. the new Kings Place cultural Hall in London – show what can be done. With the May opening of the Three Mills Lock giving access for 350 tonne barges to the Olympics site, we hope for significant tonnages to be delivered by barge – waste is already being taken away for recycling.

Stuart Klosinski, Secretariat, Keep Our Future Afloat Campaign

Britain's naval shipbuilding industry is a world leader in advanced engineering, offers long-term, high-skilled careers, is a way to 'Build Britain's Future Investment' in shipbuilding, and helps the more peripheral parts of the UK such as Clydeside, Plymouth and Barrow where the industry is often the major employer, and areas throughout the country where many of the supply chain businesses are located.

The UK's economic wellbeing depends on the sea and shipping. The Royal Navy needs to be equipped to ensure the safety of the sea lanes on which UK trade depends. However, in the current intense debate about the likely future availability or non-availability of funding for defence and the Royal Navy, this point is often obscured. There is a risk that the future of shipbuilding in the UK is put at risk along with tens of thousands of jobs in UK shipyards and their suppliers.

Whichever political party wins the next election will need to invest in new submarines and warships to adequately resource and protect the sea lanes on which UK trade depends. The UK will also need to continue to provide an effective strategic deterrent carrying submarine force and add new ships to enable the UK to safely transport troops and aircraft worldwide as part of the logistics needs integral to expeditionary operations overseas.

The government in 2005 committed to what it calls the largest investment in modernising the Royal Navy's capability as part of its first ever Defence Industrial Strategy. That programme covered two new aircraft carriers, up to eight attack submarines, 20 future frigates and eight to 12 destroyers, all supported by a new fleet of supply and support ships. Investment in new ships supports our defence and security and is just as important as investment in health and education. The health and wealth of the UK depends on a strong Royal Navy backed by a vibrant shipbuilding industry.