2021 promises to be a year dominated by evolution, transformation, and resilience. In this article we identify some of the key areas and issues that will have an impact upon the London marine market in 2021.
Worldwide economic uncertainty
The impact on shipping and supply chain disruption resulting from the COVID-19 worldwide pandemic and the economic fallout following the UK’s withdrawal from the EU single market following Brexit will be keenly felt in 2021 as insolvency and bankruptcy rates are expected to rise around the world, generating losses in the marine market. The publication of data relating to the UK’s trade in goods and services across international borders will be widely anticipated when published by the Office of National Statistics.
Reduced trading, rejected deliveries, and cancelled orders from traditional European customers in industries such as fishing as a result of Brexit have already been widely reported, and increased delays in cargo movements and associated claims as businesses, hauliers, freight forwarders, and customs agents struggle to come to terms with the new trading regime are anticipated until familiarity with the required paperwork becomes part of the ‘new normal’.
January 2021 saw the inauguration of Joe Biden as the 46th President of the United States. Amongst the many areas where we expect to see a different approach from his predecessor will be in foreign policy, including the challenging topic around Iranian sanctions - which affect whether cargo (such as oil) and vessels can go into or out of Iran - and this directly affects the cover marine insurers can provide.
Former President Trump withdrew the United States from the Joint Comprehensive Plan of Action (JCPOA) in 2018 and crippling sanctions were re-imposed on Iran. President Biden has made clear that he wants the deal brought back to life but expects Iran to comply with their commitments first. Iran want the sanctions lifted before they start complying again. We have therefore reached a stalemate on this crucial issue, but it is hoped that 2021 will see a resolution as a result of proposed global consultation on the manner.
Related item: US election: consequences on shipping and insurance
Container shortage problems and rising costs in EU-China shipping
Whilst a global shortage of shipping containers in December 2020 sent ocean freight rates soaring, container availability has stabilised recently following significant measures taken to re-position empty containers by the shipping lines, and increased production by container manufacturers in China, where the shortage was most acutely felt.
Nevertheless, in that time the cost of shipping from China to Europe hit a record high (US$9,000 – US$12,000 per 40-foot container) in January, and more than quadrupled from its October/November price (US$2,000) as the shortage began to take effect on shippers and importers. Congestion at the ports (partly attributable to COVID-19 lockdowns), causing disruption and delays resulted in shipping lines charging extra fees, and will continue to affect global supply chains for some time to come until more is done to add vessel capacity and accelerate empty container circulation.
The most pessimistic predictions envisage that the surge in demand for containerised goods during the pandemic and a shortage of carrying capacity will see the record high prices last until 2022.
The UK Government’s proposed plan to establish up to 10 ‘freeports’ may act as a much needed ‘shot in the arm’ to assist the country in rediscovering its maritime capabilities and offer a real solution to facilitation of trade and infrastructure post-Brexit. Under the plans, the designated areas (which could be sea ports, airports, or rail hubs) will be coupled with special economic ‘enterprise zones’ and be able to operate outside the custom’s borders and benefit from: tax concessions; simplified customs procedures; and streamlined planning process to encourage businesses, boost redevelopment, and provide a stimulus for economic activity, regeneration, and innovation. It is hoped that the national hub freeports will create thousands of jobs in the shipping and logistics industry.
The bidding process closed on 5 February 2021 and the applications, which were made by sea, air, and rail ports, are currently being assessed. A decision on the successful applications will be announced later in the Spring, with the first freeports aiming to be open before the end of the year. The establishment of freeports has the potential to significantly change the shipping and logistics landscape, both geographically and from a competition perspective.
Gulf of Guinea piracy
Incidents of marine piracy attacks off the coast of Nigeria in the Gulf of Guinea have continued to rise year on year since 2016. Amid the alarming recent reports of extreme violence employed by the pirates during the kidnapping of the crew of The Mozart in January, including the killing of one seafarer, the International Maritime Organisation (IMO) has been prompted to form a Gulf of Guinea piracy group at the next Maritime Safety Committee in May to address the issue. Further inter-state cooperation and collaboration has been called for to reduce the threat.
Current antipiracy guidance to insured owners and operators for the protection of vessels and crew sailing through the Gulf of Guinea is contained within ‘Best Management Practice (BMP) West Africa’, which sets out proven ship protection measures including promoting the use of: (i) good watch keeping and enhanced vigilance (thermal imagery optics/night vision aids), (ii) avoidance manoeuvres; (iii) alarms and physical barriers such as water spray and foam monitors and razor wire; (iv) enhanced bridge protection; and (v) citadels/safe muster points. However, it remains to be seen what further proposed deterrent measures (such as increasing the sentences for the guilty pirates and increasing the number of navy patrols) will be taken in 2021 by maritime stakeholders in the region.
It is expected that there will be an accelerated shift towards the use of autonomous technology, vessels, and vehicles in 2021 as the world and the shipping industry continues to grapple with the effect of COVID-19. An estimated 100,000 crew members are discharged worldwide every month for shore side leave, and the pandemic has caused huge logistical and financial issues in repatriating seafarers safely.
The cost benefit of adapting to remote operations and autonomous digital technologies will continue to drive down the number of crew required to operate vessels as more owners and charterers seek to modernise their fleets. Significant numbers of class surveys are now conducted remotely, and even if fully autonomous shipping might not yet be on the horizon given the wider delays in innovation and production as a result of the pandemic, continued developments in artificial intelligence and significantly better connectivity at sea are positive steps in the right direction. As previously forecast, changes will come with many challenges and the supporting legal frameworks will be tested, especially given the increased reliance on automation will expose the shipping industry to more ‘cyber’ incidents.
Related item: Autonomous sailing update
Climate risks and sustainability initiatives
Worldwide initiatives aimed at fighting climate change and encouraging sustainability continue at pace. Specifically the IMO has set well known and widely publicised ambitious targets for the shipping industry, the headline of which targets reducing CO2 emissions in international shipping by at least 40% by 2030 with a further aim of 70% by 2050 (compared the 2008 emissions).
The IMO began its aim to reduce CO2 emissions with the introduction of the Energy Efficiency Design Index (EEDI) for new ships in 2011. It was the first legally binding treaty to be adopted since the Kyoto Protocol and requires a minimum energy efficiency level per capacity mile. By 2015, new build vessels were required to be 10% more efficient, 20% more efficient by 2020 and 30% more efficient by 2025.
The IMO now intends to extend similar requirements to all existing cargo and cruise ships. Measures in relation to the Energy Efficiency Design index for Existing Ship (EEXI), were approved in November 2020 and, with an expected entry into force on 1 January 2023, it will set limits for the CO2 emissions of current vessels over 400GT. Those limits will be calculated according to a number of different factors and there will be various ways in which vessels will have to adopt to meet these limits. The most obvious option will be by reduced speeds, although it is hoped that continued innovation will find additional, alternative ways in which CO2 emissions on existing vessels can be reduced.
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Container losses and climate change – is there a correlation?
The Winter of 2020/2021 may well be remembered for the series of significant container losses involving ultra-large fully cellular container vessels (ULCVs) on transpacific voyages.
Major causalities such as those suffered by ONE Apus (1,816 containers overboard), and Maersk Essen (750 containers overboard), resulting from stack disturbances of collapses in adverse weather conditions are becoming all too frequent. These instances will continue to raise serious question-marks over the safety and size of ULCVs (the current largest is HMM Algeciras with a 24,000 TEU capacity) and the impact of future climate change related risks to shipping.