Shipping in a risky world
| by Richard Willsher 30 Sep 2003 Topic: Industries |
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With the ongoing threat of piracy, and even exploitation by terrorists, Richard Willsher considers how being the captain of your ship can be hazardous business 'The Penrider, a Malaysian-registered tanker, was en route from Singapore to Penang when a fishing boat containing 14 pirates armed with AK-47 and M-16 assault rifles intercepted the ship. After robbing the crew and forcing it to sail into Indonesian waters, the pirates took the master, chief engineer and a crewman hostage, leaving the ship to continue its passage. After protracted ransom negotiations, the hostages were returned unharmed'' This account reported by ICC Commercial Crime Services, a division of the International Chamber of Commerce, sounds like the stuff of seagoing buccaneering. In fact it is just one of hundreds of examples of modern day piracy, a phenomenon that is on the increase. In the first half of 2003, a record 234 separate incidents were reported with two-thirds of them in the waters off Bangladesh, India, Indonesia, Nigeria, and in the Gulf of Aden and the Malacca Straits. These figures are the worst since the ICC started compiling global piracy statistics in 1991. Shipping has always been a risky business, but in the early years of the 21st century it seems still to be subject to the risks which have plagued it since the dawn of time, as well as some very modern ones. Safety and security at sea has developed into a critical issue overriding all others in the sector, and what this means for world trade cannot be better summarised than by the following taken from an OECD report from July this year: ''World trade is dependent on maritime transport and great strides have been made in recent years to render this system as open and frictionless as possible in order to spur even greater economic growth. However, the very things that have allowed maritime transport to contribute to economic prosperity also render it uniquely vulnerable to exploitation by terrorist groups. The risks are numerous and encompass both containerised and bulk shipping. The vulnerabilities are important, and range from the possibility of physical breaches in the integrity of shipments and vessels to documentary fraud and illicit money raising for terrorist groups. Finally, the stakes are extremely high, as any important breakdown in the maritime transport system would fundamentally cripple the world economy...' And, if we care to see it that way, we can imagine any sea-going vessel as a floating bomb ready to wreak more carnage than a passenger jet crashing into a skyscraper. It might be one of the current generation of container vessels capable of being packed with 5,000 or more 20-feet containers, or a massive cruise ship housing 3,000 passengers and 1,800 crew, or even a small local cargo vessel or fishing boat strategically placed near a large population centre. Policing the world's entire shipping fleet would seem to be an almost impossible task. These risks have thrown into stark relief the fact that in security, as in many other areas of maritime governance, there are few global rules and virtually no worldwide enforcement of law. Cycles of overcapacity For example, there is no control on the number of ships of any class or type being built. The result is that the shipping sector is plagued by cycles of overcapacity, when there are too many ships and not enough cargo to carry. What governs shipbuilding is the view of a small number of wealthy families and ship owners who take a speculative view on the future conditions of the market in which they wish to operate. The registration of ships is intentionally shrouded in mystery through the use of flags of convenience, so-called open registries. Liberia and Panama are the best known but by no means the only examples, and their purpose is to hide the ownership of vessels, avoid taxation and limit liability. For performing their services the registries receive fees, but they have neither the desire nor the ability to enforce control over the vessels they register. There are, of course, national laws, and territorial waters in which they apply, but some states enforce their laws more stringently than others. Some, such as Indonesia for example where a large amount of piracy takes place, have geography so vast and so complicated that law enforcement is practically impossible. There is no lack of international representative bodies. The OECD is one; it reports and analyses but it does not police. The International Maritime Organisation (IMO) performs a pivotal role but one commentator has described it as ''completely toothless' It does not even possess the power of sanction against member countries that do not adopt or enforce its recommendations'' This may, to some extent, be about to change however through a series of measures prescribed by the IMO which include in their ambit governments, on board ships, maritime carrier companies, ports and documentation. The measures are being made as part of the Safety of Life at Sea (SOLAS) Convention and a new International Ship and Port Facility Security (ISPS) Code. Together the IMO, OECD and member governments aim to counter the terrorist threats as they have attempted to do through controls placed on the aviation sector. The measures are set to take effect on 1 July 2004. Meanwhile business must go on and, in fact, despite the downturn in world trade, the outlook for the shipping sector is fairly positive. A number of international freight shipping lines, including the world's biggest liner operator, the Danish AP Moller-Maersk, as well as P&O Nedlloyd and China's Cosco, have all returned positive results so far this year despite the industry as a whole having had a rough passage during 2002. This is largely due to something of a trade boom in the Asia Pacific. As a result of western companies seeking to reduce production costs, the manufacturing sectors of, in particular, China and Malaysia are booming, showing growth rates of 17% and 16% respectively. The result has been shipping capacity having been absorbed which has, in turn, meant rock bottom freight rates on the back of the recessionary economic environment over the previous couple of years when the industry had to cut prices and become more efficient. In this, however, there is the risk that shipbuilding will again rapidly expand to meet growing demand for freight capacity. Reportedly, some 500 vessels are currently on order, equal to 30% of the current worldwide shipping fleet. If this is the case, and world trade does not grow considerably, the shipping industry will again experience a glut in capacity. Meanwhile, the public will be more concerned with other aspects of world shipping. In particular, the environmental catastrophes precipitated by major shipping accidents. While the prosecutions of those responsible for the Alaskan Exxon Valdez disaster are now being achieved, it is still possible for other such events to occur. The sinking of the Prestige in November last year, carrying 77,000 tonnes of oil, is a case in point. One of the results for the shipping industry is that the European Union is to ban single hulled tankers carrying heavy fuel to EU ports from 2010. But that leaves seven years for further accidents to occur whilst shipping industry insiders argue. Whether a vessel has a single or double hull is surely irrelevant; it can still be inadequately maintained by its owner, poorly sailed by its captain and crew and still be subject to the risks of the sea, including bad weather, freak tides and acts of God. Whatever happens to improve governance of world shipping, these are immutable truths affecting the shipping sector. The other immutable truth is that, wherever we are, we as consumers expect to be able to buy goods made in other countries as our right. How they get to the shop is not something that concerns us, but every imported vehicle we drive, computer we use, out-of-season fruit or vegetable we eat, or minor manufacturing component made elsewhere for our industries, may come to us across the high seas. We cannot have these conveniences without running the risks involved in bringing them here.
Sources Richard Willsher is a financial and business writer with a background in investment banking. He is former editor of The Investor magazine. | |