The Maritime Economist Magazine Spring 2015 | Page 30

THEMARITIME Economist Profession & Practice Has the shipping industry become victim of its own success? Dr (Capt) Suresh Bhardwaj, fics,fni,fcmmi Resident Director, Maritime Training and Research Foundation, Chennai Negligible cost of freight Undoubtedly the shipping industry contributes immensely to the cause of globalisation as noted in the UNCTAD Review of Maritime Transport (2014, Figure 1.1). Shipping services being a derived demand, its performance goes in tandem with the global economic activity represented in terms of GDP , manufacturing index and merchandise trade. However, over last few years the merchandise trade is seen to have grown twice as fast as the world GDP which is reportedly due to the multiplier , effect resulting from the globalization of production processes, increased trade in intermediate goods and deepening and extension of global supply chains (UNCTAD,2014). Notably, the Review also records that 53 % of world bulk carrier fleet (in DWT terms) is new investment (age 0 – 4 years).The return on investment for the shipping companies however, has been far below the expectations. The current market condition for Bulk carriers is deplorable as reflected in the table below: The yardstick for the success of shipping industry is the declining cost of freight that renders the global supply chains cost-efficient and contributes to the increased globalization. Initiatives like economies of scale and efficient port operations not-withstanding, other measures to reduce cost of operations to bear low freights takes its toll on safe ship operations. Governance of the industry is then through enforcing minimum compliances to regulatory requirements. Regulatory requirements in turn, emanate from accident investigations. The paper builds on this root-cause analysis and delves deeper as it runs into some questionable fundamentals of risk management within the shipping industry. ME Mag  30 SPOT TC AVG 1 (USD) On 4th March 2015 (USD) ONE YEAR AGO (USD) 1 Spot TC Average = The Average Value of the Main Shipping Routes applicable for each of the 3 types of ships Capesize Panamax 4979 4615 22295 8502 Supramax 5755 11727 Source: (http://www.dryships.com/pages/report.php)