2023 World of Shipping Portugal Conference

An International Research Conference on Maritime Affairs
25 - 26 January 2023 for the Online Conference | 26 - 27 January 2023 for the Physical Conference, Portugal
   
 
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Chairman's Message

 
As the world population gets vaccinated against COVID-19 and governments relieve the confinement measures so that their economies return to pre-pandemic levels, there are still many hurdles preventing the world economy from returning to such conditions. Barriers still exist to those populations who lack the full vaccination programme, not to mention the reinforcement dose that some of us already have. In addition, the tourism sector is still in its infancy, although the number of people flying has been increasing. A couple of days ago, when going to London, I found a plane fully booked, which is a good sign for aviation as airports are still depleted from people. As we leave the winter season and enter the spring and summer months, we can only hope that this positive trend continues since numerous countries depend on tourism to achieve a balanced balance of payments. Aviation is not the only sector that benefits from increasing passengers flying. Numerous ancillary service activities such as bars and restaurants or agencies offering local sightseeing tours also benefit from it. Moreover, tourism supports the goods markets and the manufacturing sectors since it promotes a more relaxing atmosphere in which we are more prone to shopping than in some other moments of our lives. However, the goods sector is facing its most unprecedented challenging moments and may witness a complete revolution in its distribution channels, the extent of which is yet to be seen. Whether people will go on shopping online or return to traditional brick and mortar shopping, only time will tell. What the statistics tell us is that global trade is expected to reach about US$ 28 trillion in 2021 due to an unprecedented increased trade demand of 23% compared to 2020, supported by subsidised pandemic restrictions and economic stimulus packages. A record-high if we consider the numerous and severe disruptions that supply chains have witnessed during 2021. According to BIMCO, cargo volumes between Asia and North America increased by 27% in the first seven months of 2021, compared with pre-pandemic levels.
 
Factors leading to these disruptions derive from unpredictable swings in demand, which posed pressures on supply chains, resulting in unprecedented shipping costs. In addition, the whole industry, including shipping companies, ports, shippers, and inland carriers, have been struggling with severe and widespread port congestion levels witnessed in so many countries worldwide due to the COVID-19 pandemic. For example, on 9 January 2022, 109 ships waited to be berthed at Los Angeles and Long Beach, with berthing delays varying throughout the year and some ships having to wait up to 33 days to berth. All this resulted from a lack of 1) port workers, truck drivers, and port capacity, which altogether resulted in high port inefficiencies, and 2) hinterlands infra- and superstructure, not to mention the shortages in containers, transport equipment like chassis and space on container ships. However, the most outstanding disruption that 2021 may have witnessed was the temporary blockage of the Suez Canal due to the Ever Given containership grounding, resulting in a halt of part of the maritime traffic using that maritime chokepoint. While highlighting the role of maritime transport in world trade and showing how the different raw materials, manufacturers and consumer markets are entwined, the Ever Given grounding also highlighted how fragile the existing supply chains were and still are. A significant number of companies managing their supply chains and logistics operations on a just in time basis were challenged with the need to change their supply chain strategies and implement more flexible and resilient supply chains capable of accommodating these shocks. Moreover, industries under pressure, such as the automotive one, had to stop due to the lack of components, namely semiconductors. The issue of nearshoring or even reshoring came to the highlights even though such relocations may take time and go against the market globalisation principles witnessed in the last decades.
 
As 90% of the goods traded internationally are carried by sea, the impact of these disruptions on maritime transport has been high, and the markets behave differentlyThe tanker market witnessed severely unbalanced supply and demand conditions resulting in weak freight rates. The year 2021 was considered by Arthur Richier as a ‘tepid year’ compared with 2020, which was reported to be one of the most volatile years; according to him, all vessel classes experienced tonne-miles below 2019 averages for the whole of 2021. Most of the non-eco, non-scrubber crude tonnage was forced to operate at sub-zero levels for large parts of the year while the eco tonnage and those equipped with the exhaust gas cleaning technology achieved higher results, thus recouping part of their fixed operating expenses. The dry bulk market witnessed freight rates hitting decade-highs, subject to 1) supply chain bottlenecks and severe weather events, which exacerbated port congestion and disrupted terminal operations, and 2) global containerised trades. But certainly, the biggest winner is the container shipping market which witnessed unprecedented freight rates rate increases and surcharges and extraordinary profit levels due to the factors previously mentioned and others such as high container dwell times inside ports both on exports and imports, and increased blank sailings resulting in reduced service levels and carrier reliability. For example, on 21 September 2021, Shifl.com reported that the freight rate for a 40/HC from China to New York totalled US$19,500.
 
The management of containers along their operational life cycle between origin and destination and consequent repositioning at the origin to be loaded again became a headache for the numerous logistics operators despite the entrance of 7.2 million TEU in the market, representing 14% of the global container equipment fleet in 2021. This helps explain why various ports worldwide recorded high volumes of containers handled. Moreover, this market segment has been forced to readjust the management of its capacity along the different trade routes it served, leading to the redeployment of containerships from one trade to another to overcome the fragile service reliability along the main trade routes, for instance, Asia – West Coast of North America. Meanwhile, some operators were chartering out containerships at US$200,000 a day for short term employment, US$155,000 per day for a six-month charter and owners selling a six-year-old, 6,865 TEU vessel for US$125 million. Against all this, the shipping industry suffered from an unprecedented global crew-change crisis. The restrictions imposed on global travel left thousands of seafarers in a situation where they could neither sign off from their ships for their breaks nor join their ships to work. Many crews end up extending their contracts by several months, some of them not seeing land in 18 months. Situations of fatigue, depression and mental illness came to the public discussion as seafarers reported signs of them.
 
Among all this, the maritime industry is on its pathway to decarbonisation. However, this roadmap is complicated due to some countries’ economic interests and because many factors contribute to its success. Countries must reach a consensus to secure a global policy framework that includes taxing carbon emissions to create a level playing field and fund the research and development that the industry needs so desperately to decarbonise fully. The European Union ‘Fit for 55’ package, containing a set of legislative proposals so that its climate, energy, land use, transport and taxation policies reach the European Green Deal’s objective of reducing net greenhouse gas emissions by at least 55% by 2030 below 1990 levels and climate neutrality by 2050 while being a good solution is not a practical one given the international character of the business. Moreover, shipping decarbonisation still faces technological challenges that the big industrial players, for instance, the engine manufacturers, are still addressing; the zero-carbon vessel technology is still in its infancy. The technological challenge for developing engines capable of running on only one type of alternative fuel is still there, bearing in mind that some of these fuels may reduce ships’ cargo-carrying capacity and, consequently, vessels' earnings to accommodate the fuel tanks without compromising ships safety, including their stability. For sure that over the following years, the industry will rely on improving engine’s energy efficiency with most ships built with dual-fuel engines to ply in the deep-sea trades, although the tri-fuel engine is expected to dominate the mid-term transition.
 
Finding the alternative source of energy that will replace the current fossil fuel is still a daunting task. Without the one alternative zero-emission fuel option in place, the industry needs to consider several viable alternative fuels to make the right decisions regarding the renovation of the fleet when the time comes. While liquefied natural gas is a transition fuel due to the methane slip, methanol appears to be a viable alternative. However, methanol production on a large scale to supply the world fleet requires considerable investments and resources into fuel production, supply chains, and a new or retrofitted fleet. Moreover, the cost of methanol production is currently high, and production volumes are low. This explains why A.P. Moller-Maersk signed already a contract securing the supply of roughly 10,000 tonnes per year of carbon-neutral e-methanol to operate its first carbon-neutral ship in 2023. The production cost of hydrogen and hydrogen-derived fuels is also high. Hydrogen does not exist naturally and is not easy to store or transport because of its low volumetric energy density and small molecular size. The production of hydrogen and hydrogen-derived fuels also needs considerable resources, which are available in some regions of the globe and require well-designed and implemented distribution chains between production and consumption markets. Only if the demand increases to scale up production does the possibility of lowering their costs exist, particularly in green hydrogen. On the other hand, ammonia, as an alternative shipping fuel, mainly if it concerns green ammonia, is seen as the potential long-term solution for running zero-carbon maritime value chains; however, its handling raises concern due to its toxicity level. The alternative could be vessels’ retrofitting; however, this may not be an option given the high costs attached to it. As a short-term strategy, shipping companies must trade off the ship’s age against her earning capacity over the remaining years of her life to see if such investment is feasible. However, finding shipyards to carry out such work may be difficult given the limited capacity and order book size. As of 28 February 2022, Mediterranean Shipping Company, Evergreen Line, CMA CGM Group and Wan Hai Lines accounted for 232 containerships altogether.
 
Besides, the industry decarbonisation will benefit from other disciplines such as digitalisation, smart operations, voyage optimisation, machine learning that together contribute to a better performance of the industry, albeit at higher freight rates due to the price of alternative fuels. The creation of green corridors also helps to decarbonise the shipping industry if shippers are prepared to pay the high freight rates incurred with cargo moving along zero-emission trade routes. Vessels fitted with engines running on green methanol are expected to be 10-15% more expensive since the alternative fuel costs more than twice the price of conventional bunker fuel. Overall, the decarbonisation of the shipping industry is more than a policy or technological issue. It also concerns a change of mentality. While keeping the knowledge learned over the years, the zero-carbon transition requires shipowners to adopt new business models and be disruptive with the past. Shipping companies’ future growth strategies need to consider environmental, social, and governance standards as banks and financial institutions’ criteria towards screening investments become stricter. With capital loans becoming more expensive than before, the industry has an opportunity to remove the existing substandard fleet since shippers will also be accountable for the pollution they cause.
 
Subject to these events, the expectations for 2022 are still uncertain due to trade growth uncertainty. Moreover, some manufacturing sectors still depend on how their supply markets evolve. For instance, if the global semiconductor shortage persists, numerous manufacturing sectors can be affected, other than the automotive or computer industries. COVID-19 disruptions will also affect the economies of many countries, which can negatively affect consumers’ demand levels. In addition, only 57% of the world population is fully vaccinated, and vaccination rates in low-income countries continue to lag since only 13% of the population has received the first dose of the vaccine.
 
The current Russia-Ukraine crisis, which results from the one that began in 2014, will impact the global economy. The first impacts are already being witnessed in the energy markets, with the energy prices soaring almost a week after Russia invaded Ukraine. The price of oil reached a peak of nearly US$114 per barrel, the Dutch April gas contract hit a new record high of €185 per megawatt-hour, trading 41% higher, and the European coal prices for 2023 rose to a record $260.5 a tonne. However, the economies of both countries will suffer even more the negative impacts of this crisis. While Russia is suffering now from strict international sanctions affecting its international and domestic economies, for instance, by removing its banks from the SWIFT system or blocking about 429 internationally trading vessels over 10,000 dwt flagged, owned, or operated by Russian interests from entering the European Union, British Canadian ports, the Ukraine economy is destroyed because of the massive attacks caused by the Russian army. Military action will reduce maritime trade in the Black Sea, with countries having to find alternative sources to Ukrainian ores, Ukrainian and Russian grains (wheat and corn) and Russian crude oil. Ultimately, Russia’s position in the international rankings in 2020, as the world’s fourteenth largest exporter and twenty-first largest importer, will be affected. Moreover, as sanctions persist, Russia may eventually lose its position as the third-largest crude oil exporting country as more oil will be purchased from the United States, Saudi Arabia and Iraq.
 
These events will eventually contribute positively to the global earnings of the shipping industry. The replacement of supply sources means longer distances travelled by goods, whatever their nature, resulting in increasing ton-mile, demanding more ship capacity and higher freight rates. History has shown that wars and other similar conflicts have always benefited the industry, even temporary. According to Glenn Koepke, ocean rates could even double or triple due to the invasion from $10,000 per 40-foot container to $30,000. Moreover, the 200 ships waiting to cross the Kerch Strait, connecting the Black and the Azov Seas, can increase these rates. Container shipping companies, such as Maersk, ONE, Mediterranean Shipping Company, CMA CGM and Hapag-Lloyd, decisions to temporarily suspend shipments to and from Russia and Ukraine will impact at least 47% of global container shipping. Moreover, it will add further pressures on the management of containers, as these will be parked somewhere until the situation is solved, reducing the equipment availability, even though the Black Sea container shipping trade is not significant.
 
With this challenging background, the 2023 World of Shipping Portugal Conference kicks off subject to the theme “Maritime Transport Roadmap up to 2030”, expecting the Russia-Ukraine crisis to end soon. The Conference is a meeting point that brings the industry, leading academic scientists, researchers, and research scholars together to exchange and share their experiences and research results on all aspects of maritime transport to promote a better future for the industry. Whether the Conference takes place physically or virtually, we hope to see you there.
 
Parede, Cascais, Lisbon
03 March 2022
 
Ana Casaca
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Conference Organiser

 
The Conference organisation is under the responsibility of Ana Casaca. For further information about her click here.
LinkedIn Profile: https://www.linkedin.com/in/ana-casaca-deck-officer-phd-fics-58253115/
 
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