As Asia becomes the growth engine of the world, there is a need to assess the various opportunities and risks in its shipping sector, which is a key enabler. Lionel Alva...
The Asia-Pacific region is considered as being the growth engine of the world. So much so that countries like China, Taiwan, Vietnam and India have become low-cost manufacturing hubs. The region is home to several emerging economies and has been thriving in recent times. It has become an emerging hub for shipbuilding, port and infrastructure investment as well as commodity and energy investment on a massive scale.
This century is considered the Asian century and now, more than ever, companies operating in Asia must not only keep an eye on key financial metrics, but must also account for political, reputational, and other non-financial risks when developing regional strategies or making key investment decisions. Many Asian countries are economically dependent on each other and this inter-dependence is growing.
Large mainline containers now have access to more ports. The Free Trade Agreements such as the ASEAN Free Trade Area (AFTA) ,ASEAN–China Free Trade Area (ACFTA), ASEAN–India Free Trade Area (AIFTA), Asia-Pacific Trade Agreement (APTA) will help towards consolidating the trade in the region. Thus in the Asian context, in terms of the total number of twenty-foot equivalent units (TEUs) transported, Shanghai, Singapore and Hong Kong are the three busiest container ports in the world, with a throughput of 33.6 million, 32.6 million and 22.4 million TEUs respectively in recent times.
And despite a recent economic slowdown world-over, the ports in Asia are booming and it is home to some of the biggest ports in the world. The Asian ports have established themselves as being highly competitive and espouse efficiency levels that are on par with the rest of the world. India and China are powering the Asian growth story. Recently, the chairman of the Adani group announced a Rs 20,000 crore investment into the Gujarat ports over the next five years. The Adani group also signed a contract agreement for development of the Rs 7,525-crore Vizhinjam International Deepwater Multipurpose Seaport.
“The number of ports where some of the largest main line container ships can call is on the rise. The trade between various Asian nations is likely to register a quantum jump with countries entering in to Free Trade Agreement with one another and easing access to products and services from each other.” observes Unmesh Abhyankar, CEO, Mundra Port.
Furthermore, according to Drewry’s recently released report on Global Container Terminal Operators Annual Review and Forecast, the annual global container throughput is projected to be 840 million TEUs till 2018, which is an increase of cent percent compared with the global container throughput of 2004. Along with the increased container throughput, profits would go upwards as well. As a result, more and more new players start joining container terminal operations. Generally, container throughput would increase at the speed of 5.6 percent in the coming five years. Also, the utilisation of terminals would also be increased from 67 percent to 75 percent.
Ships are becoming larger and larger, strategic alliances expanding, and container liners facing financial burden, global terminal operators and shipowners rising, and the pace of ports’ automisation and mechanisation accelerating, all lead to the increase in container throughput. In this regard Maersk Line has signed a $1.1 billion contract for nine 14,000 TEU ships from Korea’s Hyundai Heavy Industries, its third major order this year, as it accelerates a $15 billion investment programme aimed at consolidating its position as the world’s largest ocean container carrier.
“The vessels will be designed to operate in and perform efficiently across many trades and not just designed for one specific trade. They will help us stay competitive and make our fleet more flexible and efficient,” asserts SorenToft, Maersk Line’s chief operating officer.
This increasing trend will be particularly significant in Africa and China. The ports in China and Singapore already rank among the top five busiest ports for containers in the world.
Abhyankar adds, “The Asian Century is now a certainty. Asia will become the engine for global growth. Some of the largest ports in the world are already in Asia. The number of such ports is set to rise even further. The average size of ships is likely to rise even further rather than the number of ships. There is a strong possibility of a strong growth in some shipping industry segments such as LNG, crude oil carriers and container feeder vessel.”
The advent of bigger ships in the Asian shipping sector poses a challenge for insurers owing to their dimensions and value, while others raise concerns on structural integrity and failure. While scale alone does not make these ships riskier, the increased sizes introduce specific risks that need to be addressed, such as salvage and recovery considerations and emergency handling. Furthermore, the reduced crew numbers, which can compromise safety and encourage human error while increasing bureaucracy on board ships.
“In last few years, on-board security equipment and armed guards spends has increased by twice from about $1 billion to $2 billion. At the same time, the average annual spend on maritime security reduced to half to $ 6 billion from $16 billion. Economic cost of security threat attached per ship per transit without armed guards is estimated at $ 134,000. “avers Alok Kumar, CEO, Alphard Maritime, an organisation that builds security systems for ships and ports.
While recent trends have led to an improvement and augmentation in technology, it has also placed a greater emphasis on the human factor. It is imperative that the shipping industry formulates a best practice risk management and culture of safety around the fleet.
“There is a difficulty in stealing and move containerised cargo, even to hide it in big ships. Only small product tankers, with their low freeboards and speed, alongside their cargo, are most susceptible. Particularly those crewed by local nationalities. Information leakage is the most compromising in the security of a vessel,” adds Kumar.
According to an Allianz Global Corporate & Specialty report on maritime security, which is a global product leader for hull and marine liabilities, over 75 percent of marine losses can be attributed to a wide range of ‘human error’ factors, including fatigue, inadequate risk management and competitive pressures, as well as potential deficiencies in training and crewing levels.
Apart from these risks, unmitigated accidents have often been catalysts for key changes in the maritime industry. Like the recent massive explosion in a warehouse at Tianjin Port International Logistics Center that disrupted operations at the Tianjin port and the container traffic was quickly diverted to ports in the vicinity.