Understanding challenges in global shipping: The risks involved in maritime logistics
Close to 90% of global trade volume is transported by cargo ships. Port infrastructure and cargo vessels – the maritime industry – thus build the backbone of a functioning global supply chain. For a long time, seamless maritime transport has been taken for granted. However, the current global health crisis has once again highlighted risks involved in maritime logistics: Prices have quadrupled within a few months after the outbreak of the pandemic and supply chains were disrupted because of container shortages and closed ports. This article should serve businesses to make better transport decisions by providing a holistic assessment of the challenges involved in global shipping. To do so, we look beyond the sea transport itself and focus on the broader concept of maritime logistics. Maritime logistics services cover all processes involved in loading and unloading cargo vessels, stowing and unstowing sea freight, port consignments, and many more.
Source: Reuters: Maritime logistics does not only comprise the cargo transport on the water, but also many steps before and after shipment, such as cargo handling at ports
Global demand in the maritime shipping industry
According to UNCTAD’s Review of Maritime Transport 2021, global maritime trade contracted by 3.8% in 2020, but rebounded in late 2020 and increased by 4.3% in 2021. The medium-term outlook for maritime trade remains positive despite current uncertainties. Looking forward, the maritime freight market is expected to grow at a CAGR of approximately 4% until 2026.
Source: Allied Market Research: Projected shipping industry development until 2026
China’s role in global shipping
China takes a key role in driving the development of the global maritime industry. In particular, a continuing high demand for raw materials as well as the high amount of finished goods has been characterizing China’s trade in recent years. The Asian superpower’s exports contributed to 39.18% of its GDP in 2020. Besides, China is the world’s second-largest importer, after the United States. Naturally, the high levels of foreign trade accelerate global shipping demand. Data provided by the World Trade Organization (WTO) show that merchandise worth US$2.5 trillion was imported to and exported from China via shipping in 2020. This represents 53% of China’s total trade value of that year, and exceeds trade volume transported by air, rail and road combined.
Assessing frequent risks: Which risks are most relevant with regards to maritime logistics?
Like other transport options, sea cargo comes with pros and cons. According to the Transportation Risk Index, maritime transport providers perceive threats related to cyber security as well as data privacy as the most challenging. Besides, businesses should be aware of price risks and the potential downfalls of shipping incidents, amongst others.
Port infrastructures: a crucial element in the global maritime industry
Port closures have disrupted the maritime industry after the outbreak of the current pandemic. Even when ports were operating, the problem of reduced port productivity (given employee’s health problems and resulting longer waiting times) persisted. Taking decisions has undoubtedly been challenging for customs officials, port workers and transport operators. They have recognized the need to reduce physical contact, while at the same time ensuring that ships keep moving, ports remain open and cross-border trade flowing.
Another risk involved in maritime logistics that cannot be overlooked is the instability of price levels. Container transport prices are at record levels following the outbreak of the pandemic, which has disrupted maritime logistics.
Source: Freightos Baltic Index: Global container freight rate development
There were 2,703 shipping incidents in 2020 and 40 total losses, of which 37% were cargo ships. Trade disputes, extreme weather conditions, the Covid-19 pandemic and rising demand in containerized goods led to major delays and disruptions in the shipping industry. Despite occurring rarely, the blockage of important shipping routes constitutes another risk factor that must be taken into consideration.
Case: How the Suez Canal blockage in 2021 disrupted global maritime logistics
In march 2021, the Suez Canal was blocked for six days due to the container ship Ever Given, running aground. The Suez Canal is of utter importance for global maritime trade, as approximately 12% of global trade and 30% of global container traffic traverse this artery of global shipping. According to a study by Allianz, each single day the Suez Canal was blocked decreased global annual trade growth by 0.2-0.4%. This translates into costs of around 400 million U.S. dollars per hour the canal was blocked.
Source: CNN: The blockage has caused massive traffic jams as ships wait to enter the canal after the accident
Thanks to local and international authorities protecting the world’s main shipping routes, piracy does no longer constitute a major business risk. The most piracy-prone areas for international maritime trade routes coming in and out of China are the Singapore Strait, and the waters close to the Indonesian and Nigerian shores.
Cyber security risks
While many of us still focus primarily on mitigating physical risk such as piracy or shipping incidents, the emerging risks related to cybersecurity should not be underestimated. For example, from February to June 2020, cybersecurity consulting firm Naval Dome documented a 400% increase in attempted hacks against maritime vessels. Cyber attack techniques range from malware to Phishing, Social Engineering and the subversion of supply chains. It seems that with the introduction of autonomous navigation technology, which is expected to be the future of marine mobility, traditional risks will decline, while new cyber risks emerge.
Key take-aways about the risks involved in maritime logistics in China
To overcome challenges in global shipping and mitigate the risks involved in maritime logistics, businesses should consider the following:
- Firms are well-advised to develop a risk-based strategy such as marine insurance. This should be a priority for every business operating in maritime logistics.
- Risks involved in maritime logistics have shifted from physical risks to more cyber-related threats in recent years.
- In stark contrast to the the Chinese cruise industry, the global maritime industry rebounded comparably soon after the outbreak of the pandemic. The maritime industry is projected to grow considerably in the upcoming years.
To manage your business risks so you can optimize your growth, insure your business today, please contact ARMS.
You can also follow us on WeChat in with the QR code below.