Down by the Seaside: Current Political and Economic Dynamics in the Shipping Industry

The shipping industry is currently facing a challenging time due to the necessity of recovering from the crisis spurred by the collapse of the once-seventh largest shipping giant in the world, Hanjin, as well as a requirement to adapt to an increasing demand for technological advancements that seek to minimise costs by removing as many parties as possible from the transportation process. Even further, such progress has created a vicious battlefield in which emerging giants such as Amazon and Maersk, whom I shall attend to in the latter part of this article, are engaged in an ongoing struggle for ownership of the largest market share. In this entry, I aim to analyse the broad impact of Hanjin's fall on the shipping industry across the globe as well as convey how this, together with the wider issue of overcapacity, are paving the way for new methods of transport to be promoted by up-and-coming players in the market. The parallels between the impact of Lehman Brothers' collapse on the global financial crisis and Hanjin's on the shipping industry are resemblant and thus worth mentioning, while current shifts on the political stage may bear serious repercussions for ship owners, with Brexit being accorded utmost attention.

The prelude to the Hanjin collapse may be characterised by an ongoing slowdown in the shipping industry that was itself brought on by interlinked factors such as a weak global gross domestic product, overcapacity on container vessels and changing consumer spending patterns that struck hard at profits, seriously affecting the financial health of the world's top 20 ocean carriers. The core of this tribulation is easy to comprehend: a mere supply-demand disequilibrium in which there were too many ships and too little cargo. The rising risk and eventual downfall of Hanjin may also be partly attributable and traced to the global financial crisis and the Eurozone Crisis. With regards to the former, it was in 2009 that the shipping industry as a whole suffered losses amounting to $15 billion while Hanjin itself was confronted with a loss of $1.1 billion as a result of a drastic reduction in consumer spending due to an eradication of trust in the financial system and subsequent diminution of demand. From a logistical standpoint, this would have affected the implementation of cargo transport operations, thus not only damaging the retail sectors but the profits that are generally accrued from carrier services. It may further be argued that the so-called "boom mentality" that permeated the housing market and Western society more broadly also found its way into the shipping industry with numerous colossal super-ships having been ordered prior to 2007, under the optimism that global container demand would soar. On top of that, the Eurozone Crisis prevented a rebound in Asian-European trade, which was vital to Hanjin's success and stability, representing 22.7% of the company's revenue in 2010 before falling to 16.5% in 2015. 

The rippling effects of Hanjin are still being felt for upon its entrance into court receivership, many of the company's ships were seized or otherwise prohibited from entering ports, effectively leaving large quantities of cargo adrift and this could seriously dampen trade and retail sales. Moreover, from a banking perspective, small and medium-sized companies may find themselves in financial tumult if they cannot unload their merchandise from the stranded ships, due to their debt obligations. Equally badly affected were trucking companies which were cast in a cloud of uncertainty for following Hanjin's collapse, they struggled with whether to deliver containers to their final destinations themselves, unknowing of who would pay them. This created a major disruption to trucking performance for usually, cargo owners employ the services of a steamship line in order to manage the entire door-to-door operation, and this includes drayage costs. Since the collapse, truckers have found it difficult to find locations to deposit empty containers and this has led to numerous equipment being piled up, thus imposing heavier burdens upon trucking companies. Arguably, when such a crisis ensues, it is the truckers themselves that are hit hardest because their main concern, which coincidentally defines their ability to earn a living, is how many successful turns they can make in one day. Once that is disrupted, their livelihood is instantly affected. To emphasise the gravity of this, by the end of September 2016, more than 10,000 chassis were trapped underneath Hanjin boxes, which amounts to about 3 times the typical average. The issue was further compounded by the fact that many terminals did not open up their yards to take empty containers due to a diffusion of responsibility. 

At the same time, Hanjin's creditors were dealt a similarly debilitating blow due to unsatisfactory results produced by liquidation efforts. For example, according to a report made after the first creditor meeting in a South Korean court on 1 June, the claims filed equate to approximately $10 billion yet the sale of the debtor's assets, supervised by the appointed bankruptcy trustee, has only gathered $220 million or 2.4% of the total debt claimed to be owed. The process may even take a turn for the worse once a claim is disputed or negated by the bankruptcy trustee as that would require further legal assiduity. In light of what has been discussed so far, it is clear that there are staggering parallels between the huge blast radius of Lehman Brothers in 2008 and of Hanjin more recently. Both institutions were initially deemed "too big too fail'' and in the case of the latter, it was expected that the South Korean government would bail it out in order to avoid a shipping calamity across the entire global industry. Yet this was not the case, with the government directing its efforts at unloading stranded merchandise so as to ease the tensions created by disruptions in the supply-chain. 

Despite the fears and anxieties that arose in the aftermath of Hanjin's collapse, there has been a silver lining in terms of the remaining shipping tycoons coming to the realisation that freight ought to diversify in order to accommodate the changing face of the industry with regards to technological progress. Since the demise of Hanjin, there has been an increasing emphasis on quality in the container enterprise. As such, the market is becoming increasingly dominated by top players with megaships meaning that those smaller companies that are unable to acquire such vessels could be in danger of becoming redundant. The growing use of appropriately labelled "mammoth" ships is central to this paradigm shift, because those who possess them are able to deploy fewer vessels and transport more cargo in a single journey in order to profit from higher rates. In terms of figures, there are currently 58 of these colossal carriers worldwide which are able to bear more than 18,000 containers and this number is expected to double in two years. Even though the issue of overcapacity still roams, a demand increase appears to be on track which would offset some of the setback caused by said issue. 

Nevertheless, this would serve as a temporary measure and the maritime shipping industry finds itself in dire need of change. To quote Frank Coles, the chief executive officer of Transas, the market for sea-based assets has "run out of steam''. Recurring instances of overcapacity denote an industry that is weak and unable to manage itself or make any sort of progress in light of the technological revolution that is surrounding it. Coles' argument thus indicates that the industry is very much in denial, with emerging players such as Amazon seeking new methods of optimising their services. For example, in 2016, Amazon acquired the title of a non-vessel common carrier for cargo shipments between China and the United States. This essentially consolidated the company's position as a fully-fledged logistics company and freight spearhead as they already are in the trucking, aviation and manufacturing sectors, the complete supply-chain. 

Manufacturing is certainly a novel endeavour for Amazon after winning a patent earlier this year to develop a system in which clothing and other products may be rapidly made as soon as a customer order has been placed. This move acts as part of the company's plan to wipe out the 'middle man' and become an acting shipbroker both for itself and on behalf of smaller companies. Of course, such developments would allow Amazon to retain complete control over certain areas of their supply chain as well as monopolise the shipping industry by aiming for as large a market share as possible. However, this is not going be a smooth ride for Amazon for they are embroiled in an arms race with other shipping giants, most notably Maersk. The latter recently joined forces with Alibaba, itself an authority in its field, in an attempt to interlink logistics and e-commerce and be one step ahead. For example, the One-Touch Tool provided by Alibaba is able to dodge the requirement of having middle men such as freight forwarders by a creating a platform specifically designed for suppliers to reserve a place on a carrier at a fixed price on a specified route by simply laying down a deposit. Thus, this tool diminishes additional costs associated with traditional shipping procedures and is more time-efficient. Maersk can henceforth be said to be at the forefront of shipping technology, co-operating with others of similar calibre in order expand its knowledge across borders. On a more negative note, smaller businesses could be left in a state of destitution if they do not change their business model by, for example, ceasing from having ships enter deep sea ports where massive ships owned by the likes of Maersk are only able to dock. 

Consequently, in terms of lessons to be learned, the fierce competition between Amazon and Maersk points to a changing environment in which the way that manufactured goods are shipped and delivered could change forever, proceeding to potentially cause a radical change in how ships are built and affect the type of technology that will exist on ships in the future.

That said, this technological revolution, as Coles put it, will not only be affected by the competition between technologically savvy companies but also by obstacles potentially erected by future political decisions. Hence it comes as no surprise that shipping companies have cast their eyes on Brexit and on the effects of a potentially ''hard'' Brexit. It has been predicted by the UK's shipping lobby that ports in Britain will enter a state of "gridlock" should the United Kingdom and Europe not agree upon a smooth trade deal. A tentatively labelled "cliff-edge Brexit", in which Britain leaves the European Union without any sort of transition deal could spark a chaos that would have a major knock-on effect across the whole of Europe. This so-called "gridlock'' would manifest itself in places such as Dover, which is one of the UK's busiest lorry ports and Holyhead, which is responsible for managing all incoming cargo from the West. A hard border, which would come to fruition in the event of a hard Brexit, would add time to current procedures by lengthening cargo checks which would subsequently run the risk of creating major blockages at ports. Consequently, the wish of EU shipowners for there to remain in place tenseless traffic by sea between the UK and Europe, as well as the free movement of seafarers resonate with the desire to maintain trade relations smooth, which would be of vital necessity in this transitional period that the shipping industry is undergoing.

So, to conclude, difficult times lie ahead for the shipping industry. Not only has the recent crisis jerked it, but has also created a battleground upon which emerging giants are fighting to dominate the market. Politicians ought to therefore tread lightly as shipping is paramount to trade, which in turn is paramount to the global economy and any missteps in any negotiations, such as Britain's divorce from the EU, could plunge the industry and, by extension the global economy, into further crisis.


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