The massive challenges facing maritime supply chains have been well documented with many manufacturers and consumers in Western markets facing severe shortages due to shipment delays. Although the shipping industry has come in for much criticism over the last six months, the blame for congestion and delays cannot be levelled at any one particular part of the industry. Rather, entire supply chains are being disrupted at every stage. As one commentator put it on social media:

I have cargo in China, but I can’t get a box. When I get a box, I can’t get a ship. When I get a ship, I can’t get a berth. When I get a berth, I can’t get a truck. When I get a truck, I can’t get a chassis. When I get a chassis, I can’t find space at a warehouse to take the cargo.”

It would be easy to underestimate the strength of feeling which exists in the market at the moment. Shippers are angry not only at the rates they are having to pay but also with the delays and general customer service which they receive. The undercurrent of discontent has been evident for many years before Covid, but in the last year it has certainly come to a head. Whoever is to blame, or whether it is due to the confluence of events, it is not a healthy situation.

Although most of the focus has been on the impact on markets in Europe and North America, less attention has been paid to the economic implications of the crisis for developing countries. However, arguably, in the long term, these markets could face much more prolonged and severe damage than their Western counterparts.

Developing markets the victim – again

At the time of the last Great Recession in 2008, politicians in the developing world were highly critical of the global financial system for seemingly turning its back on them. Credit was withdrawn by many of the world’s banks leading to the abandonment of infrastructure projects. This resulted in some countries turning to China for financial support and loans, which of course for political reasons, the Chinese government was happy to supply.

This time round the risk to developing markets comes from a structural failure of the world’s shipping industry rather than financial – but the effects are the same. Many in the developing world feel that whenever there is a crisis, global systems (set up to serve Western markets) fail them. Hence there could be a further pivot to China – the crisis represents an opportunity for China’s government to embrace developing countries within its Belt & Road Initiative.

State owned shipping lines back on the agenda?

What is more, some shippers in the developing world are once again talking about the development of state-owned national shipping lines. Much of the capacity which formerly served developing markets has been allocated to the major trade lanes i.e. the trans Pacific trades and the Asia to Europe market. The increase in rates has made it economic for shipping lines to deploy much smaller ships on these lanes. Many shipping lines have started to miss out calls to smaller ports in developing markets, preferring to consolidate their services around ‘mega ports’ for reasons of customer demand and speed.

The disruption to shipping schedules has reduced many smaller countries’ export capacity, resulting in containers being left in port. ​In New Zealand, Napier Port said 40 container ships had missed their scheduled calls at the port in the eight months to May 31.

In response, there has been talk that the re-emergence of national shipping lines is the only way to ensure that products get to market in a timely fashion. The Federation of Indian Export Organisations (FIEO), for example, has urged politicians to establish an indigenous shipping line to tackle these issues.

The fall out for developing markets’ SMEs

Small and medium sized enterprises (SMEs) in the developing world are amongst the worst to be affected. Shipping lines are naturally (some would say) favouring their multinational clients or those which are able to pay for premium products. Cargo from shippers which do not fall into this category are being left at the quayside.

With rates set to continue at record levels for many months to come, carriers will continue to pick and choose customers according to their buying power. The rest will lose control over their costs, being ‘kicked’ on to the spot market and having to pay on some occasions in excess of $10,000 extra for each container. What is seen by some as just a fact of life, could drive many developing market SMEs out of business with severe societal implications as well as reinforcing the belief that the present structure of the industry is inherently unfair.

Not just global structures to blame

It would be easy just to blame systemic failings within the global shipping industry for the problems facing developing country exporters. However, this is only part of the story and much of the responsibility for the present situation lies with the governments themselves.

Writing in the WMU Journal of Maritime Affairs, author Adekola Oyenuga says, ‘…decades of weak public management, under-investment in maritime infrastructure, an under-served demand for maritime transport and low interconnectivity between land and sea-based logistical networks, have contrived to keep the development and performance of Africa’s maritime transport sector at a disappointingly low level, relative to other global regions.’

It is much the same case in India where importers and exporters are unhappy that the capacity of the country’s ports has not kept pace with growth in trade in recent years. Transhipment at foreign ports delays shipments which makes Indian companies uncompetitive in the global market. Road, rail, inland waterway connectivity with ports and integration of various state and government agencies also needs to be addressed.

Is there structural change under way?

It would be easy to imagine that after a few months of sky high rates and congested supply chains, everything will return to ‘normal’. However, this time round there is a strong market sentiment that the failings of the industry must be addressed. A survey undertaken by TI Insight for the Agility Emerging Markets Logistics Index found that close to 60% of survey respondents believed that operations had changed permanently, either globally or within certain regions, as a result of the pandemic (14%, unchanged). The evidence from survey respondents is that operating models must adapt to changes in supply chains and the global economy as the Covid-19 pandemic recedes.

But what can be done, if anything? If we look at the supply side, the huge profits which the shipping lines are making have made them vulnerable to political intervention. From a US perspective, President Biden is asking the FMC to look at the structure of the industry to assess whether consolidation has gone too far and whether there are anti-competitive practices at work. The shipping lines would argue not, of course, but there are broader issues such as whether larger ships, and larger ports and the alliances that have developed are in the interests of the global market as a whole. However, although it may be politically expedient for politicians in both developed and developing markets to complain about the shipping crisis, it is difficult to see what steps can realistically be taken to make sure it doesn’t happen again.

There is plenty of scope to make the whole shipping process more efficient and to employ new technologies. More automation in ports, for example, could decrease the time it takes to unload a ship and expedite onward inland distribution. More digitization of shipping documents will hasten Customs clearance. However, if ships aren’t calling at a port or are waiting for a berth and there are not enough trucks or rail chassis to move the container inland anyway, there is little to be done.

If maritime supply chains are not more responsive to the needs of all stakeholders, an increasing number of developing countries will look towards building up their own shipping and port capacity, facilitated by Chinese money and know how. This could result in the development of parallel supply chain eco-systems – one Sino-centric, the other Western-focused – which could have long-lasting strategic, political, economic and security implications.

Source: Foundation for Future Supply Chain, August 2, 2021

Author: John Manners-Bell

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